-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TXiadNmkJQZJGzU6e1vDQMp0peEZTp059OA0urAkiuCTLAOLomj/OQqBhevBQ9gV 76uRz8PLXrdQtKf0uirhrg== 0000950135-98-002010.txt : 19980331 0000950135-98-002010.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950135-98-002010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIRUS RESEARCH INSTITUTE INC CENTRAL INDEX KEY: 0000902010 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 223098869 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20711 FILM NUMBER: 98578541 BUSINESS ADDRESS: STREET 1: 61 MOULTON ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6178646232 MAIL ADDRESS: STREET 1: 61 MOULTON ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-K 1 VIRUS RESEARCH INSTITUTE, INC. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-20711 VIRUS RESEARCH INSTITUTE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 22-3098869 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 61 MOULTON STREET 02138 CAMBRIDGE, MA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 864-6232 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.001 par value per share (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on February 2, 1998 as reported on the Nasdaq National Market, was approximately $22,484,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 2, 1998, Registrant had outstanding 8,928,314 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of Stockholders to be held on May 7, 1998 are incorporated by reference in Part III of this Form 10-K. ================================================================================ 2 FORWARD-LOOKING STATEMENTS: In addition to historical information, this Form 10-K includes forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ from those reflected in the forward-looking statements. Certain factors that might cause such a difference are discussed in the second paragraph of the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Page 15 of this Form 10-K. PART I ITEM 1. BUSINESS GENERAL Virus Research Institute, Inc. (the "Company") is engaged in the discovery and development of systems for the delivery of vaccines and immunotherapeutics, and improved and novel vaccines for adults and children. The Company is developing a portfolio of proprietary vaccine delivery systems designed to improve the efficacy, lower the cost of administration and improve patient compliance for a variety of vaccine products. As part of the Company's strategy to bring its vaccine delivery technologies to market, the Company collaborates with corporate partners that offer substantial market presence, unique antigens and/or complementary technologies. The Company and its collaborators currently are applying the Company's vaccine delivery systems to develop vaccines for the prevention of influenza, Lyme disease, respiratory syncytial virus (RSV) and H. pylori infections. The Company has entered into agreements with Pasteur Merieux Connaught ("PMC"), Pasteur Merieux-OraVax ("PM-O") and CSL, Ltd., Australia ("CSL") pursuant to which these companies may utilize the Company's vaccine delivery systems in developing a number of vaccines. During 1997, the Company entered into a collaboration with SmithKline Beecham (SB) for the development and commercialization of the Company's oral rotavirus vaccine. Rotavirus infection causes acute diarrhea and dehydration in infants. The Company is also developing its own proprietary vaccines utilizing antigens licensed exclusively by the Company, including a vaccine for HSV2, the virus that causes genital herpes. In addition, the Company is engaged in the research and development of Therapore(TM), a novel system for the delivery of immunotherapeutics for chronic viral infections and cancers. While vaccines have proven to be safe and effective for the prevention of certain infectious diseases, the Company believes that there is significant potential for improvement, including: enhancement of the immune response; reduction in the number of doses required for an effective immune response; increase in the percentage of the population responding to certain vaccines; delivery of vaccines through methods other than by injection; and stimulation of a mucosal immune response. To address these shortcomings, the Company is developing vaccine delivery systems that may lead to more effective and less costly vaccines, increased patient compliance and the introduction of new vaccines. The Company's strategy is to utilize its expertise in the design and application of vaccine delivery systems to develop vaccine products for infectious diseases that have significant and growing market potential. The Company is developing three vaccine delivery systems. The Adjumer(TM) vaccine delivery system utilizes a novel polymer, which is a synthetic polyphosphazene derivative ("PCPP"), as an adjuvant for use with a variety of antigens administered by injection. The Company believes that Adjumer(TM)-formulated vaccines will be capable of producing an enhanced and longer-lived immune response with fewer injections. In preclinical studies, Adjumer(TM)-formulated vaccines elicited an immune response that was greater than either vaccines formulated with alum, the only approved adjuvant for commercial use in humans, or non-adjuvanted vaccines. The Micromer(TM) vaccine delivery system utilizes a mixture of PCPP and antigens formed into hydrogel microparticles for the intranasal and oral delivery of vaccines. Mucosal vaccine delivery has potential advantages over conventional delivery by injection, including ease of administration and the generation of immunity at the mucosal surfaces, where most infectious organisms enter the body, as well as the generation of systemic (blood and other organs) immunity. The VibrioVec(TM) vaccine delivery system utilizes a recombinant bacterial vector for the oral delivery of antigens to the gastrointestinal tract. The Company believes that VibrioVec(TM)-delivered vaccines will be capable of inducing both a systemic and a mucosal immune response. 1 3 The Company is developing Therapore(TM) for the treatment and prevention of certain persistent viral infections and cancers. Early stage research studies indicate that Therapore(TM) is distinguished from other systems by its ability to deliver large proteins and peptides with high efficiency. Therapore(TM) transports these therapeutic polypeptides into the cell where normal cellular processes induce potent cell mediated immune responses. The Company believes that Therapore(TM)-delivered antigens will be capable of producing an enhanced cell mediated response with fewer injections. VACCINE OVERVIEW The Vaccine Market. Vaccines have long been recognized as a safe and cost-effective method for preventing infection caused by certain bacteria and viruses. The Centers for Disease Control and Prevention (the "CDC") have estimated that every dollar spent on vaccination saves $16 in healthcare costs. There are currently 16 vaccines in routine use in the United States against such life-threatening infectious organisms as tetanus, diphtheria, poliovirus, hepatitis A virus, hepatitis B virus, Haemophilus influenzae B, measles, mumps and rubella. From 1990 to 1996, annual worldwide vaccine sales increased from $1.6 billion to $4.0 billion, a compound annual growth rate of approximately 16.5%. The Company believes that this growth may be accelerated as a result of advances in vaccine technologies and formulations that address the shortcomings of existing vaccines. Areas of potential improvement include enhancement of immune responses, which could lead to a reduction in the number of doses required for effective protection as well as effective immunization in a higher percentage of the population, and delivery of vaccines through methods other than injection. The vaccine market may also expand due to the introduction of new purified antigens, produced as a result of advances in molecular biology. The Company also believes that the growing awareness and incidence of certain infectious diseases, such as H. pylori, hepatitis C virus, HIV1 and HSV2 infection, could further expand the vaccine market. The Immune System and Vaccines. The function of the human immune system is to respond to pathogens, including infectious bacteria and viruses, that enter the body. However, a pathogen may establish an infection and cause disease before it is eliminated by an immune response. Antibodies are produced as part of the immune response to antigens, which are components of the pathogen. These antibodies can continue to circulate in the human body for many years, providing continued protection against reinfection by the same pathogen. Protective antibodies can be produced in both the systemic and mucosal branches of the immune system. The systemic immune system produces IgG antibodies to protect against infection occurring in blood and deep tissue. The mucosal immune system produces IgA antibodies that protect against infection occurring in the mucosal layer lining the digestive, respiratory and genitourinary tracts. Mucosal immunity may act as a first line of defense, by attacking pathogens at the point of entry into the body, prior to systemic penetration, as well as by targeting certain pathogens such as H. pylori, influenza and rotavirus that propagate exclusively at the mucosal layer. Vaccines are a pre-emptive means of generating a protective antibody response. A vaccine consists of either a weakened pathogen or pathogen-specific, non-replicating antigens which are deliberately administered to induce the production of antibodies. When weakened pathogens are used as a vaccine, they replicate in the body, extending presentation to the immune system and inducing the production of antibodies without causing the underlying disease. When non-replicating antigens are used as a vaccine, they must be delivered in sufficient quantity and remain in the body long enough to generate an effective antibody response. To achieve this goal, many vaccines require multiple administrations. Of the 16 vaccines currently in routine use, 14 are delivered by injection and stimulate only systemic immunity. Only polio and typhoid vaccines can be administered orally and induce both a mucosal and a systemic immune response. Both of these vaccines are live, weakened pathogens that localize in the intestines and do not require a separate vaccine delivery system. Adjuvants. The antigens contained in many injectable vaccines will not produce an immune response sufficient to confer protection against infection and require the use of an adjuvant to sustain the presentation of the antigens to the human immune system. Alum (aluminum hydroxide) is the only adjuvant currently approved by the FDA for commercial use in humans. While alum has gained widespread use, it does not 2 4 sufficiently enhance the immune response to permit administration of many existing injected vaccines in a single dose. In the case of certain vaccines, such as influenza, alum is ineffective as an adjuvant. The Company believes that alum will not prove to be sufficiently effective for use with many of the new purified recombinant antigens being developed. Further, alum cannot be used for mucosal delivery of vaccines. Accordingly, the Company believes that there is a significant need for a new adjuvant that is safe, works with a wide variety of antigens, induces a protective immune response with only one or two injections and can be administered mucosally. These attributes could result in certain benefits, including cost savings and improved patient compliance. COMPANY VACCINE DELIVERY SYSTEMS The Company is developing a portfolio of proprietary vaccine delivery systems designed to improve the efficacy, lower the cost of administration and improve patient compliance for a variety of vaccine products. The following summarizes the Company's three main vaccine delivery systems:
DELIVERY SYSTEM COMPOSITION DELIVERY METHOD POTENTIAL BENEFITS(1) --------------- ----------- --------------- --------------------- Adjumer(TM)................ Water Soluble Polymer Injectable Enhanced systemic immune response; fewer injections Micromer(TM)............... Polymer Mucosal Systemic and mucosal Microparticles immune responses; no injections VibrioVec(TM).............. Genetically Oral Systemic and mucosal Engineered Bacterial immune responses; Vector targeted delivery; no injection; single dose
- --------------- (1) Based upon preclinical studies conducted by the Company. The Company's vaccine delivery systems are in various stages of development. The summary information included in the above table is qualified in its entirety by the detailed discussion of each of the vaccine delivery systems that follows. Adjumer(TM). The Company is developing Adjumer(TM), a proprietary vaccine delivery system as an adjuvant to enhance the immune response to injected vaccines. Adjumer(TM) is a water soluble, synthetic derivative of the polymer polyphosphazene (PCPP). The water soluble nature of PCPP facilitates a simple aqueous-based manufacturing process for vaccines, thereby preserving the integrity of the antigen. In preclinical studies conducted by the Company, Adjumer(TM) demonstrated sustained presentation of influenza, hepatitis B, HSV2, HIV1 and tetanus antigens to the immune system. In those preclinical studies, single intramuscular injections of Adjumer(TM)-formulated vaccines elicited a higher immune response than both alum-formulated vaccines and non-adjuvanted vaccines as measured by resulting IgG antibody levels. In additional preclinical studies, an Adjumer(TM)-formulated influenza vaccine using lower antigen doses sustained higher antibody levels over a longer time period than both alum-formulated vaccines and non-adjuvanted vaccines. In certain other preclinical studies Adjumer(TM)-formulated vaccines produced an effective immune response in a higher percentage of animals than in animals receiving existing vaccine formulations. Furthermore, in these studies, as well as tests conducted using Adjumer(TM) alone, the Company observed no material adverse reactions when Adjumer(TM) was administered at effective levels. Based on these preclinical results, the Company believes that an Adjumer(TM)-formulated vaccine may provide a number of benefits over existing injected vaccines. These benefits include reducing the number of doses required for an effective immune response, thereby improving compliance; providing cost savings as a result of the reduction in the number of doses and the amount of antigen required; and increasing the time period over which immune protection can be sustained. In addition, based on the results of these preclinical studies, the Company believes that an Adjumer(TM)-formulated vaccine may be able to induce an immune response in a number of subjects who would not otherwise respond to existing vaccines. The first human 3 5 clinical trials of a vaccine using Adjumer(TM) as a delivery system commenced in 1996. See "Product Development Programs." Micromer(TM). The Company is conducting ongoing research on Micromer(TM), a proprietary vaccine delivery system designed to facilitate the mucosal (intranasal or oral) delivery of antigens and stimulate both the systemic and mucosal branches of the immune system. The focus of the Company's current efforts are on intranasal delivery. Micromer(TM) is synthesized utilizing a manufacturing process in which PCPP and an antigen are formulated into hydrogel microparticles. The Company believes that the physical characteristics of these microparticles will facilitate absorption by mucosal surfaces. In preclinical studies conducted by the Company, several Micromer(TM)-formulated antigens delivered intranasally elicited both a mucosal (IgA) immune response and a systemic (IgG) immune response. IgA antibodies were detected at all mucosal sites, and the level of IgG antibodies was comparable to the level obtained through Adjumer(TM)-formulated injections of the same antigen. A Micromer(TM)-formulated influenza vaccine required only a single, intranasal dose to provide an immune response sufficient to protect the animals against subsequent infection by the influenza virus. In addition to conducting further research on the Micromer(TM) vaccine delivery system, the Company has commenced research on additional Micromer(TM)-formulated vaccines. VibrioVec(TM). The Company is developing VibrioVec(TM), a proprietary vaccine delivery system that uses a bacterial vector for the oral delivery of antigens. This vector is a live organism that has been genetically altered to make it non-virulent, incapable of reacquiring virulence and capable of delivering selected antigens. VibrioVec(TM) is an attenuated form of the bacterium Vibrio cholerae. In preclinical studies conducted by the Company, single, oral doses of VibrioVec(TM) engineered to express genes encoding antigens from selected bacteria have generated systemic and mucosal immune responses that protected against infection from the virulent organism. In addition, in 1995 the Company completed Phase II human clinical studies involving more than 100 subjects administering VibrioVec(TM) as a potential cholera vaccine. The subjects in this study showed no clinically significant vaccine-related side effects. Separate clinical trials will be needed to test each antigen proposed to be delivered by VibrioVec(TM). Based on its preclinical studies, the Company believes that VibrioVec(TM) will be an effective oral delivery system that can deliver antigens to the gastrointestinal tract where the VibrioVec(TM) vector will grow and express the antigens for a limited period of time. The Company is currently inserting the genes which encode certain H. pylori antigens into VibrioVec(TM) to determine if the vector containing these genes can grow and express the antigen. STRATEGY The Company's strategy is to utilize its expertise to design and develop vaccine and immunotherapeutic products that have significant and growing market potential; to establish commercial alliances that permit funding of clinical development and rapid commercialization; and to retain rights to important market opportunities. Develop Novel Vaccine Delivery Systems. The Company is developing a portfolio of vaccine delivery systems to address shortcomings in currently available delivery methods, as well as to provide new methods of vaccine delivery. The Company's vaccine delivery systems, which are based on a novel polymer and on bacterial vectors, have the potential to improve existing injectable vaccines and to permit intranasal and oral delivery of vaccines. These systems may be applicable to most of the vaccines in routine use and may enable the introduction of new vaccines to prevent bacterial or viral diseases for which there is currently no adequate treatment or prevention. The Company intends to pursue the broad application of its current vaccine delivery systems, as well as to continue to invest in the development of new vaccine delivery technologies. Develop Proprietary Vaccines. The Company is currently developing several proprietary vaccines believed to have significant near-term commercial promise. The Company is continuing to seek exclusive licenses for suitable antigens to be used to develop vaccines with a significant market potential. The Company believes that the development of its own proprietary vaccines complements its development of novel vaccine 4 6 delivery systems. The Company believes that its ability to combine its vaccine delivery technology with its own proprietary antigens may lead to the introduction of new vaccines with competitive advantage. Develop Immunotherapeutic Products. The Company is developing Therapore(TM), a proprietary technology that uses a bacterial protein system for the injectable delivery of proteins and peptides to generate potent cell-mediated immune responses. The bacterial protein system is a bacterial toxin that has been genetically altered to make it non-toxic, and capable of transporting certain antigens. Based on research conducted to date, the Company believes that Therapore(TM) will be able to introduce both peptide and protein antigens into human cells leading to the development of potent cell-mediated immune responses. The Company believes Therapore(TM) will be a core technology in the development of novel immunotherapeutic products and that the development of these products complements its development of novel vaccine delivery systems and proprietary vaccines. The Company intends to pursue the broad application of Therapore(TM) across the field of persistent viral infections and cancers. Establish Collaborations for Product Development and Commercialization. The Company has entered into and intends to seek additional collaborative agreements with established vaccine companies to develop vaccines utilizing the Company's vaccine delivery systems and its collaborators' antigens. By entering into these collaborations, the Company believes it will benefit from the antigen development work already performed by its collaborators and from access to their extensive clinical testing capabilities, wide distribution and marketing infrastructure and market presence. This strategy may permit the Company to take advantage of the expertise of its collaborators and thereby expedite commercialization of products incorporating the Company's technologies. With respect to the proprietary vaccines and immunotherapeutics being developed, the Company generally intends to seek collaborators who will be responsible for completing the clinical testing and for the manufacturing and marketing of the product. However, the Company intends to develop such proprietary vaccines and immunotherapeutics to the point at which it believes it can establish the most commercially favorable collaborations. The Company believes that this strategy will allow the successful market introduction of products incorporating the Company's technologies without the Company incurring the substantial costs associated with Phase II and III clinical development. One of the Company's significant collaborative arrangements is with PMC. The Company is a party to two license agreements entered into in December 1994 and August 1995 with PMC relating to Adjumer(TM)- and Micromer(TM)-formulated vaccines, respectively, for the prevention of a variety of infectious diseases. Under the agreements, PMC has been granted the exclusive right to make, use and sell Adjumer(TM)- and Micromer(TM)-formulated vaccines for prevention of influenza, Lyme disease and diseases caused by meningococcus and the co-exclusive right (exclusive, except for the right of the Company or one other person licensed by the Company) to make, use and sell Adjumer(TM)- and Micromer(TM)-formulated vaccines directed against five other pathogens, including pneumococcus and RSV. The licenses to PMC apply to specified territories, including North and South America, Europe, Africa, Thailand and the countries of the former Soviet Union. The Company has retained rights to make, use, sell and license Adjumer(TM)- and Micromer(TM)-formulated vaccines against the subject infections in most of the Far East, including China and Japan, subject to certain geographical extension rights available to PMC. PMC made a $3.0 million equity investment in the Company in December 1994 upon the execution of the agreement relating to Adjumer(TM). In addition, in connection with this collaboration, in 1996 PMC made milestone payments of $4.5 million to the Company and an additional equity investment of $1.0 million in the Company. Contingent upon achieving certain milestones, PMC has agreed to pay the Company up to an additional $6.2 million in connection with the development of Adjumer(TM)-formulated vaccines for influenza and Lyme disease. Contingent upon achieving certain milestones, PMC has also agreed to make payments, on a product by product basis with respect to the development of other Adjumer(TM)- and Micromer(TM)-formulated vaccines. PMC is required to fund all costs associated with the development and commercialization, including the costs of clinical trials, of any vaccines it elects to develop utilizing the Company's technology. In addition, the Company will be entitled to royalties based on net sales of any vaccine products developed and sold by PMC pursuant thereto. 5 7 In connection with its agreement relating to Micromer(TM), the Company agreed to conduct research through 1997 to develop Micromer(TM)-formulated vaccines directed against influenza and PIV. Through December 31, 1997, PMC has paid the Company $2.5 million to fund this research. The Company will fund the costs associated with any Phase I clinical trial of a Micromer(TM)-formulated influenza vaccine (see "Product Development Programs"). Under the agreement relating to Adjumer(TM), the Company was required to use commercially reasonable efforts to establish a process capable of yielding quantities of clinical grade PCPP for use by PMC in clinical studies. The Company has satisfied this requirement. In addition, the Company has facilitated the production of commercial grade PCPP in a contractor's cGMP manufacturing facility according to agreed upon specifications. The PMC agreement, while reserving to PMC the right to manufacture PCPP, anticipates that the Company will supply PCPP under a cost-plus supply agreement. The Company also has a collaborative arrangement with Pasteur Merieux-OraVax for the use of the Company's vaccine delivery system, VibrioVec(TM), to develop vaccines against H. pylori infections. The agreement grants to PM-O a worldwide license to use VibrioVec(TM) for the delivery of specific H. pylori antigens. A license issue fee as well as research support payments totalling $1.0 million has been earned under this agreement through December 31, 1997. The agreement also provides for future milestone payments and royalties on net sales of any future products developed by PM-O. The option previously granted to PM-O for the use of PCPP in the delivery of H. pylori vaccines has expired. During 1997, the Company entered into an agreement with SmithKline Beecham (SB) to collaborate on the development and commercialization of the Company's oral rotavirus vaccine. Rotavirus infection causes acute diarrhea and dehydration in infants. Under the terms of the agreement, SB will receive an exclusive worldwide license to commercialize the Company's rotavirus vaccine. The Company will be responsible for continuing the Phase II clinical efficacy study of the rotavirus vaccine which was initiated in 1997 (see "Product Development Programs"). Upon successful completion of the Phase II study, SB will assume responsibility for all subsequent clinical and other development activities. SB made an initial license payment in 1997 upon execution of the agreement and has agreed to make further payments upon the achievement of certain milestones. In addition, the Company will be entitled to royalties based on net sales of the rotavirus vaccine. In January 1998, the Company entered into an agreement with Heska Corporation whereby Heska will have the right to use PCPP in certain animal health vaccines. The agreement provides for the payment of license fees, milestone and royalties based on net sales of PCPP-formulated animal vaccines. PRODUCT DEVELOPMENT PROGRAMS The Company and its collaborators are engaged in research and development efforts on vaccine programs using the Company's technologies. The Company and PMC, the leading worldwide supplier of influenza vaccines, are currently collaborating on the development of an Adjumer(TM)-formulated vaccine for influenza. The Company is conducting research on the mucosal administration of an influenza vaccine using its Micromer(TM) vaccine delivery system. Influenza accounts for an average of 20,000 deaths annually in the United States; the greatest number of fatalities occur among the elderly. In preclinical studies conducted by the Company and PMC, an Adjumer(TM)-formulated influenza vaccine produced a significantly enhanced and longer-lived immune response than one of the influenza vaccines currently on the market. PMC completed Phase I human clinical trials of this Adjumer(TM)-formulated influenza vaccine in France during 1997. A total of 48 young and 41 elderly adults participated in this study, which was designed to measure the safety and level of immune response to the vaccine. Based on the results of the study, which showed the Adjumer(TM)- formulated vaccine was well tolerated and elicited improved responses, a Phase II safety and immunogenicity study was initiated by PMC during 1997. A total of 430 elderly adults participated in the Phase II study, which was conducted in Peru. Preliminary results of the Phase II clinical trial confirmed that the Adjumer(TM)-formulated vaccine was well tolerated. However, results of the Phase II study appear to be inconsistent in certain respects with Phase I results. The degree of improvement in immune responses elicited by the Adjumer(TM) influenza vaccine was less in comparison to the control group than was elicited in the Phase I study. At the same time, certain control group results also appear to be significantly higher in Phase II than in 6 8 Phase I. The Company and PMC are currently analyzing and assessing the results of the Phase II study to determine the appropriate next steps to take with the clinical development of the product. PMC is continuing to investigate the use of Adjumer(TM) in other vaccines. The Company understands that Phase I trials of Adjumer(TM)-formulated vaccines for Lyme disease and for RSV will be initiated by PMC during 1998. The Company is also developing a novel vaccine against rotavirus infection. Rotavirus, a major cause of diarrhea and vomiting in infants, affects approximately 80% of the approximately 4 million infants born each year in the United States. As a result, on an annual basis, about 500,000 infants require medical attention and 50,000 are hospitalized. The economic burden in the United States is estimated at over $1 billion in direct and indirect costs. The Company anticipates a vaccine against rotavirus disease will become a universal pediatric vaccine. The Company has completed Phase I clinical trials of an orally delivered live human rotavirus vaccine selected to elicit a broadly protective immune response to the most prevalent strains of rotavirus. During 1997 the Company completed a Phase I/II clinical trial designed to define the optimal vaccine dose and optimal age for immunization. Based on the assessment of the safety and immunogenicity of the vaccine, the Company initiated a Phase II efficacy study in 1997. The results of this study are expected to be available by mid-1998 and depending upon the outcome of this study, the Company anticipates that the product will advance to Phase III clinical studies in 1999. As discussed in the preceding section, following the successful completion of the Phase II clinical trial, SB will assume financial responsibility for all subsequent clinical and development activities. The Company is developing a vaccine against HSV2, a sexually transmitted virus which causes genital herpes. HSV2 has an estimated incidence of 500,000 new cases occurring in the United States each year. At present, there is no approved vaccine for prevention of HSV2 infection. The Company plans to initiate Phase I clinical trials of the vaccine for the prevention of genital herpes during 1998. In addition, the Company is currently conducting animal studies in preparation for a Phase I trial of a Micromer(TM)-formulated influenza vaccine during the second half of 1998. During 1997, the Company received an exclusive worldwide license from Harvard College to Therapore(TM), which the Company believes to be the core of a novel technology for the development of immunotherapeutics. The system is initially being evaluated in therapies to treat chronic viral infections such as Hepatitis B, Hepatitis C and HIV, and cancers including melanoma. COMPETITION Competition in the biotechnology and vaccine industries is intense. The Company faces competition from many companies in the United States and abroad, including a number of large pharmaceutical companies, firms specialized in the development and production of vaccines, adjuvants and vaccine delivery systems and major universities and research institutions. Most of the Company's competitors have substantially greater resources, more extensive experience in conducting preclinical studies and clinical testing and obtaining regulatory approvals for their products, greater operating experience, greater research and development and marketing capabilities and greater production capabilities than those of the Company. There can be no assurance that the Company's competitors will not develop technologies and products that are safer or more effective than any which are being developed by the Company or which would render the Company's technology and products obsolete and noncompetitive, and the Company's competitors may succeed in obtaining FDA approval for products more rapidly than the Company. There can be no assurance that the vaccines under development by the Company and its collaborators will be able to compete successfully with existing products or products under development by other companies, universities and other institutions or that they will attain regulatory approval in the United States or elsewhere. The Company believes that the principal competitive factors in the vaccine market are product quality, measured by efficacy and safety, ease of administration and price. 7 9 The Company's competitive position will also depend upon its ability to attract and retain qualified personnel, obtain patent protection or otherwise develop proprietary products or processes and secure sufficient capital resources for the often lengthy period between technological conception and commercial sales. MANUFACTURING The Company has no manufacturing facilities, no experience in volume manufacturing and plans to rely upon collaborators or contract manufacturers to manufacture its proposed products for both clinical and commercial purposes. The Company believes that there is currently sufficient capacity worldwide for the production of its potential products by the Company's collaborators or through contract manufacturers. To date, the Company has been arranging on a purchase order basis with contract manufacturers for the manufacture of PCPP and vaccines in quantities sufficient for preclinical studies and for clinical trials of the Company's rotavirus vaccine candidate. The Company has a contract for the development and initial supply of the starting materials for PCPP but does not yet have a written contract with a manufacturer for production of PCPP or for any other components of its vaccine delivery systems or vaccine candidates. The manufacturing processes for the Company's vaccine delivery systems and vaccines utilize known technologies. The Company believes that the vaccine delivery systems and vaccines it currently has under development can be readily scaled up to permit manufacture in commercial quantities. However, there can be no assurance that the Company will not encounter difficulties in scaling up the manufacturing processes. In addition, the Company has facilitated the production of commercial grade PCPP in a contractor's cGMP manufacturing facility according to agreed upon specifications. The PMC agreement, while reserving to PMC the right to manufacture PCPP, anticipates that the Company will supply PCPP under a cost-plus supply agreement. The Company intends to establish manufacturing arrangements with manufacturers that comply with the FDA's requirements and other regulatory standards, although there can be no assurance that the Company will be able to do so. In the future, the Company may, if it becomes economically attractive to do so, establish its own manufacturing facilities to produce any vaccine products that it may develop. In order for the Company to establish a manufacturing facility, the Company will require substantial additional funds and will be required to hire and retain significant additional personnel and comply with the extensive cGMP regulations of the FDA applicable to such facility. The product manufacturing facility would also need to be licensed for the production of vaccines by the FDA. MARKETING Under the terms of existing and future collaborative agreements, the Company relies and expects to continue to rely on the efforts of its collaborators for the sale and marketing of any vaccine products. There can be no assurance that the Company's collaborators will market vaccine products incorporating the Company's technologies, or, if marketed, that such efforts will be successful. The failure of the Company's collaborators to successfully market products will have an adverse effect on the Company's business. The Company has retained, and in the future intends to retain, marketing rights to certain of its vaccine delivery systems and vaccine candidates in selected geographic areas. The Company intends to seek marketing and distribution agreements and/or co-promotion agreements for the distribution of vaccines in such territories. The Company believes that these arrangements could enable the Company to generate a higher level of financial return than might be obtained from early stage licensing and collaboration agreements for its vaccine candidates. The Company has no marketing and sales staff and limited experience relating to vaccine marketing. If the Company determines in the future to engage in direct marketing of vaccine products, it will be required to recruit an experienced marketing group and incur significant additional expenditures. There can be no assurance that the Company will be able to establish a successful marketing force. 8 10 PATENTS, LICENSES AND PROPRIETARY RIGHTS Licenses The Company has entered into several significant license agreements relating to technology which is being developed by the Company or its collaborators, including licenses from: Massachusetts Institute of Technology covering certain proprietary technologies for vaccine delivery related to PCPP microparticles; Penn State Research Foundation covering the production of polyphosphazene polymer; Harvard College relating to proprietary technology involving genetically altered Vibrio and Salmonella typhi strains; Cincinnati Children's Hospital involving proprietary rights and technologies relating to an attenuated rotavirus strain for a rotavirus vaccine; Harvard College and the Dana Farber Cancer Institute relating to a genetically-altered HSV2 virus for herpes virus vaccines; and Harvard College for a novel immunotherapy delivery system to be developed to deliver products for the treatment of chronic viral infections and cancers. In general, these institutions have granted the Company an exclusive worldwide license (with right to sublicense) to certain proprietary technologies (including rights to patents and patent applications) to make, use and sell products using the licensed technology, subject to the reservation by the licensor of a non-exclusive right to use the technologies for non-commercial purposes. Generally, the term of each license is through the expiration of the last of the patents issued with respect to the technologies covered by such license. The Company has generally agreed to use its reasonable efforts to develop and commercialize products and achieve certain milestones and pay license fees, milestone payments and royalties based on the net sales of the licensed products or to pay a percentage of sublicense income. If the Company breaches its obligations, the licensor has the right to terminate the license, and, in some cases, convert the license to a non-exclusive license. Patents and Proprietary Rights The Company's policy is to protect its technology by filing patent applications. In addition to filing patent applications in the United States, the Company has filed, and intends to file, patent applications in foreign countries on a selective basis. The Company also relies on trade secrets, unpatented know-how and technological innovation to develop and maintain its competitive position. The Company owns an issued United States patent which expires on July 12, 2013, and corresponding foreign applications, directed to the use of vaccines which incorporate the Company's Adjumer(TM) vaccine delivery technology. In addition, the Company owns an issued United States patent which expires September 21, 2013, and corresponding foreign applications, directed to the use of vaccines incorporating the Company's Micromer(TM) vaccine delivery technology. Further, the Company owns and has licensed other United States patents and patent applications which are directed to technology which may be useful for the Company's Micromer(TM) and Adjumer(TM) vaccine delivery systems and corresponding foreign applications. The Company has an exclusive license to a United States patent application, and corresponding foreign applications, directed to a vector construct which is used in the Company's VibrioVec(TM) vaccine delivery system. The Company has an exclusive license to an issued United States patent which expires on December 12, 2012, directed to a rotavirus antigen which forms a part of the Company's rotavirus vaccine and to a United States patent application, and corresponding foreign applications, directed to a defective HSV2 virus for use in the Company's vaccine directed against genital herpes. The Company has an exclusive license to a United States patent application which is directed to technology which may be useful for the Company's Therapore(TM) system. Although a patent has a statutory presumption of validity in the United States, the issuance of a patent is not conclusive as to such validity or as to the enforceable scope of the claims of the patent. There can be no assurance that the Company's issued patents or any patents subsequently issued to or licensed by the Company will not be successfully challenged in the future. The validity or enforceability of a patent after its issuance by the patent office can be challenged in litigation. If the outcome of the litigation is adverse to the owner of the patent, third parties may then be able to use the invention covered by the patent without payment. There can be no assurance that the Company's patents will not be infringed or successfully avoided through design innovation. 9 11 There can be no assurance that patent applications owned by or licensed to the Company will result in patents being issued or that, if issued, the patents will afford protection against competitors with similar technology. It is also possible that third parties may obtain patent or other proprietary rights that may be necessary or useful to the Company. In cases where third parties are first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent the Company from using certain technology or from further developing or commercializing certain vaccine delivery systems and vaccine candidates. If licenses from third parties are necessary but cannot be obtained, commercialization of the vaccine candidates would be delayed or prevented. The Company is aware of a domestic patent and a foreign patent which cover claims that could conflict with the Company's vaccine candidates and delivery systems. The Company believes that the relevant claim under the domestic patent is invalid and that the relevant claim under the foreign patent does not extend to or restrict the Company's activities. There can be no assurance that the applicable patent office or court would reach the same conclusions. In addition to the patents and the patent applications referred to in the previous two paragraphs, there may be other patent applications and issued patents belonging to competitors that may require the Company to alter its vaccine candidates and vaccine delivery systems, pay licensing fees or cease certain activities. If the Company's vaccine candidates conflict with patents that have been or may be granted to competitors, universities or others, such other persons could bring legal actions against the Company claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If any such actions are successful, in addition to any potential liability for damages, the Company could be required to obtain a license in order to continue to manufacture or market the affected products. There can be no assurance that the Company would prevail in any such action or that any license required under any such patent would be made available on acceptable terms or at all. The Company believes that there may be significant litigation in the industry regarding patent and other intellectual property rights. If the Company becomes involved in such litigation, it could consume substantial resources. The Company also relies on unpatented technology, trade secrets and information and no assurance can be given that others will not independently develop substantially equivalent information and techniques or otherwise gain access to the Company's technology or disclose such technology, or that the Company can meaningfully protect its rights in such unpatented technology, trade secrets and information. The Company requires each of its employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with the Company. The agreements generally provide that all inventions conceived by the individual in the course of employment or in providing services to the Company and all confidential information developed by, or made known to, the individual during the term of the relationship shall be the exclusive property of the Company and shall be kept confidential and not disclosed to third parties except in limited specified circumstances. There can be no assurance, however, that these agreements will provide meaningful protection for the Company's information in the event of unauthorized use or disclosure of such confidential information. GOVERNMENT REGULATION The Company's activities and products are significantly regulated by a number of governmental entities, especially by the FDA in the United States and by comparable authorities in other countries. These entities regulate, among other things, the manufacture, testing, safety, effectiveness, labeling, documentation, advertising and sale of the Company's products. Product development within this regulatory framework takes a number of years and involves the expenditure of substantial resources. Many products that initially appear promising ultimately do not reach the market because they are found to be unsafe or ineffective when tested. In the United States, vaccines for human use are subject to FDA approval as "biologics" under the Public Health Service Act and "drugs" under the Federal Food, Drug and Cosmetic Act. The steps required before a new product can be commercialized include: preclinical studies in animals, clinical trials in humans to determine safety and efficacy, and FDA approval of the product for commercial sale. The FDA provides that human clinical trials may begin thirty (30) days after receipt and review of an Investigational New Drug application (IND), unless the FDA requests additional information or changes to 10 12 the study protocol within that period. The IND summarizes the preclinical testing and outlines the plan for the clinical trial. Authorization to conduct a clinical trial in no way assures that the FDA will ultimately approve the product. Clinical trials are conducted in three sequential phases; in Phase I, the product is given to a small number of healthy volunteers to test for safety (adverse effects). Phase II trials are conducted on a limited group of the target patient population; safety, optimal dosage and efficacy are studied. A Phase III is performed in a large patient population over a wide geographic area to prove that significant efficacy exists. The FDA has ongoing oversight over all these trials and can order a temporary or permanent discontinuation if that action is warranted. Such an action could materially and adversely affect the company. The results of the clinical trials and all supporting data are submitted to the FDA for approval. A Biologics License Application (BLA) is submitted for a biologic product; a New Drug Application (NDA) for a drug product. The interval between IND filing and BLA/NDA filing is usually at least several years due to the length of the clinical trials; and the BLA/NDA review process can take over a year. During this time the FDA may request further testing, additional trials or may turn down the application. Even with approval, the FDA frequently requires post-marketing safety studies (known as Phase IV trials) to be performed. The FDA requires that the manufacturing facility that produces a licensed product meet certain standards, undergo an inspection and obtain an establishment license prior to commercial marketing of a vaccine. The Advisory Committee on Immunization Practices (ACIP) of the CDC has a role in setting the public market in the United States for most of the products the Company intends to develop. The Committee makes recommendations on the appropriate use of vaccines and related products and the CDC develops epidemiologic data relevant to vaccine requirements and usage. To market its products abroad, the Company is subject to varying foreign regulatory requirements. Although international efforts are being made to harmonize these requirements, applications must currently be made in each country. The data necessary and the review time varies significantly from one country to another. Approval by the FDA does not ensure approval by the regulatory bodies of other countries. The Company's collaborators are subject to all of the above-described regulations in connection with the commercialization of products utilizing the Company's technology. PRODUCT LIABILITY The testing and marketing of vaccines entail an inherent risk of product liability attributable to unwanted and potentially serious health effects. If and when the Company manufactures vaccines which are recommended for routine administration to children, the Company will be required to participate in the National Vaccine Injury Compensation Program. This program compensates children having adverse reactions to certain routine childhood immunizations with funds collected through an excise tax from the manufacturers of these vaccines. The Company has clinical trial liability insurance coverage in the amount of $2 million. However, there can be no assurance that such insurance coverage is or will continue to be adequate or available. The Company intends to seek product liability insurance coverage prior to commercialization of its product candidates but there can be no assurance that insurance will be available at all or in sufficient amounts to protect the Company at a reasonable cost. HUMAN RESOURCES As of December 31, 1997, the Company had 54 employees, 45 of whom were engaged in research and development activities, including 15 Ph.D.'s. The Company's employees are not governed by any collective bargaining agreement and the Company believes that its relationship with its employees is good. 11 13 ITEM 2. PROPERTIES The Company currently leases approximately 17,800 square feet of laboratory and office space in Cambridge, Massachusetts. The lease has a five year term, which commenced on December 1, 1996, and is extendable at the Company's option for an additional five years. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 1997. Executive Officers of the Registrant The executive officers of the Company are as follows:
NAME AGE POSITION - ---- --- -------- J. Barrie Ward, Ph.D. ................. 59 Chief Executive Officer and Chairman of the Board William A. Packer...................... 63 President, Chief Financial Officer Bryan E. Roberts, Ph.D. ............... 50 Executive Vice President Lendon Payne, Ph.D., M.D. ............. 49 Vice President of Research Dale R. Spriggs, Ph.D. ................ 46 Vice President of Development Lisa P. McGillis....................... 38 Director of Finance
J. Barrie Ward, Ph.D. has served as Chairman of the Board of Directors and Chief Executive Officer since joining the Company in July 1994. From 1984 to June 1994, Dr. Ward served as Director of the Microbiology Division of Glaxo Research and Development Ltd., a pharmaceutical company, with responsibility for infectious disease research. Dr. Ward received a Ph.D. in microbial biochemistry from the University of Bath, England. William A. Packer joined the Company in 1992 as President and a Director and was also elected Chief Financial Officer in March 1996. Prior to joining the Company, Mr. Packer held various senior management positions with SmithKline Beecham plc, a pharmaceutical company, from 1964 to 1991, most recently as Senior Vice President, Biologicals, where he was responsible for the direction of SB's global vaccine business. Mr. Packer is a Fellow of the Institute of Chartered Accountants in England and Wales. Bryan E. Roberts, Ph.D. joined the Company in 1991. Dr. Roberts served as Research Director from 1991 to 1993 and as Vice President of Research from 1993 until March 1996, when he was appointed Executive Vice President. From 1984 to 1990, Dr. Roberts was the Research Director of Applied BioTechnology, Inc., a biotechnology company he co-founded. From 1978 to 1986, Dr. Roberts was an Associate Professor of Biological Chemistry at the Harvard Medical School. Dr. Roberts received a D.Phil. from the University of Oxford. Lendon Payne, Ph.D., M.D. joined the Company in 1991 and in January 1997 became an officer of the Company. Dr. Payne served as a Research Director from 1993 to 1995, and since 1996, was the Vice President of Research. Dr. Payne received his Ph.D. in virology and his M.D. from Karolinska Institute School of Medicine, Stockholm, Sweden. Dr. Payne terminated his employment with the Company on January 30, 1998. Dale R. Spriggs, Ph.D. joined the Company in May 1993, and became an officer of the Company in January 1997. Dr. Spriggs served as the Director of Clinical Research and Development until May 1995, and as Director of Clinical and Regulatory Affairs from May 1995 to March 1996, when he was appointed Vice President of Development. From 1987 to 1993, Dr. Spriggs held several positions at the National Institute of Allergy and Infectious Diseases. Dr. Spriggs received a Ph.D. in microbiology from the University of Cincinnati College of Medicine. 12 14 Lisa P. McGillis joined the Company in 1994. In 1996, Ms. McGillis was appointed Director of Finance. Ms. McGillis became an officer of the Company in January 1997. Prior to joining the Company, Ms. McGillis served as Controller at ISI Systems, Inc. and as a Certified Public Accountant at Price Waterhouse. Ms. McGillis received a B.A. from Williams College and an M.S. in Accounting from Northeastern University. Scientific Advisory Board The Company's Scientific Advisory Board currently consists of seven individuals who have extensive experience in the field of polymer chemistry, virology, infectious disease, immunology, microbiology and molecular genetics. At the Company's request, the scientific advisors review and evaluate the Company's research programs and advise the Company about technical matters in the scientific fields in which the Company is involved. The Company's Scientific Advisory Board generally meets as a group at least once a year to review and discuss the Company's progress in research and development, and certain members of the Scientific Advisory Board meet informally in smaller groups or individually with Company scientists on a more frequent basis. Each member of the Scientific Advisory Board has entered into a consulting agreement with the Company. The consulting agreements are for varying terms and provide for each of the members to render advice to the Company in the area of the Company's business and such member's expertise. Members of the Scientific Advisory Board are entitled to receive annual compensation of up to $10,000 for their services and may receive options to purchase Common Stock under the Plan. In addition, Drs. Essex and Mekalanos have separate consulting agreements with the Company pursuant to which they receive additional compensation. It is possible that any inventions or processes discovered by the scientific advisors will remain the property of such person or of such persons' employers. In addition, the institutions with which the scientific advisors are affiliated may make available the research services of their personnel, including the scientific advisors, to competitors of the Company pursuant to sponsored research agreements. The following table sets forth the name and current position of each scientific advisor:
NAME POSITION - ---- -------- Barry Bloom, M.D. ................... Retired (Former Executive Vice President, Pfizer, Inc.) Robert Langer, Ph.D. ................ The Germeshausen Professor, Department of Chemical Engineering, Massachusetts Institute of Technology Myron Essex, D.V.M., Ph.D. .......... Chairman, Department of Cancer Biology, Harvard School of Public Health, Chairman of Harvard AIDS Institute Brian Mahy, Ph.D., Sc.D. ............ Director of Viral and Rickettsial Diseases, the Centers for Disease Control and Prevention John Mekalanos, Ph.D. ............... Chairman, Department of Microbiology and Molecular Genetics, Harvard Medical School Morton Swartz, M.D. ................. Chief, James Jackson Firm Medical Services & Infectious Disease Unit of Massachusetts General Hospital, Professor, Harvard Medical School Hans Wigzell, Ph.D. ................. President, Karolinska Institute, Stockholm
13 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The Common Stock of the Company began trading in June 1996 (subsequent to the initial public offering) on the NASDAQ National Market under the symbol "VRII". The following table lists the high and low sales prices for each quarter the common stock traded during 1996 and 1997. Prior to the offering in June 1996, no established public trading market existed.
1997 QUARTER HIGH LOW 1996 QUARTER HIGH LOW - ------------ ---- --- ------------ ---- --- First........................ 8 3/4 5 First........................ N/A N/A Second....................... 8 4 3/4 Second....................... 12 1/4 9 Third........................ 7 1/8 5 Third........................ 9 1/4 5 7/8 Fourth....................... 9 1/2 3 1/4 Fourth....................... 8 1/4 4 3/4
As of February 2, 1998, the approximate number of common shareholders of record was 81. Many of these shares of Common Stock are held by brokers and other institutions on behalf of stockholders. Consequently, the Company is unable to estimate the total number of stockholders represented by these record holders. The Company has not paid a dividend with respect to its Common Stock nor does the Company anticipate paying dividends in the foreseeable future. (b) Use of Proceeds from the Company's Initial Public Offering (the "IPO") (1) Effective date of Registration Statement on Form S-1: June 5, 1996; Commission file number: 333-3378 (2) The Offering commenced on June 6, 1996. (3) Not applicable. (4) (i) All securities registered in the Offering were sold. (ii) The managing underwriters of the Offering were: Oppenheimer & Company, Inc. Pacific Growth Equities, Inc. (iii) Common Stock, par value $.001 per share (iv) Issuer: Amount registered -- 2,300,000 shares Aggregate purchase price of the Offering amount registered -- $27,600,000 Amount sold -- 2,300,000 shares Aggregate Offering price of the amount sold -- $27,600,000 Selling Security holder: Not applicable (v) $1,932,000 in underwriting discounts and expenses paid to underwriters; $925,000 of other expenses incurred; and $2,857,000 in total underwriting discounts and expenses (vi) Net offering proceeds to the Company: $24,743,000 (vii) Use of Proceeds: Purchase and installation of machinery and equipment: $417,000 Repayment of indebtedness: $1,000,000 Working Capital -- $9,117,000 Temporary investments (money market account and short-term instruments): $14,209,000 (viii) Use of proceeds does not represent a material change in the use of proceeds described in the Offering prospectus. 14 16 ITEM 6. SELECTED FINANCIAL DATA The selected financial information presented below has been derived from the audited financial statements of the Company, and should be read in conjunction with the Company's Financial Statements and related Notes thereto. STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31, FEBRUARY 11, 1991 ------------------------------------------------------------------- (INCEPTION) THROUGH 1997 1996 1995 1994 1993 DECEMBER 31, 1997 ----------- ----------- ----------- ----------- ----------- ------------------- REVENUE: Licensing and option revenue................ $ 905,556 $ 4,520,000 $ 770,000 $ 700,000 $ -- $ 6,895,556 Research and development revenue................ 1,599,982 1,476,449 1,067,480 21,269 -- 4,165,180 Interest income.......... 1,298,857 851,082 126,249 163,591 83,610 2,523,389 ----------- ----------- ----------- ----------- ----------- ------------ Total revenue... 3,804,395 6,847,531 1,963,729 884,860 83,610 13,584,125 EXPENSES: Research and development............ 7,557,055 5,262,507 5,734,427 5,756,042 4,205,781 31,566,535 General and administrative......... 2,344,638 2,328,204 1,854,732 1,887,512 1,452,344 11,308,997 Depreciation............. 401,085 673,436 583,654 517,756 268,391 2,518,916 Interest and other expense................ 65,971 165,320 87,944 52,332 84,315 719,199 ----------- ----------- ----------- ----------- ----------- ------------ Total expenses...... 10,368,749 8,429,467 8,260,757 8,213,642 6,010,831 46,113,647 ----------- ----------- ----------- ----------- ----------- ------------ Net loss........ $(6,564,354) $(1,581,936) $(6,297,028) $(7,328,782) $(5,927,221) $(32,529,522) =========== =========== =========== =========== =========== ============ Basic and diluted net loss per common share.................. $ (.74) Shares used in computing basic and diluted net loss per common share.................. 8,897,784 Pro forma basic and diluted net loss per common share........... $ (0.21) $ (1.03) Shares used in computing pro forma basic and diluted net loss per common share........... 7,639,726 6,104,671
BALANCE SHEET DATA:
DECEMBER 31, ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ------------ ------------ ------------ Cash and cash equivalents............... $ 2,488,963 $15,209,180 $ 1,180,176 $ 5,669,490 $ 954,134 Total assets............................ 20,878,339 27,437,531 2,727,905 7,667,363 2,742,301 Notes payable........................... -- -- 923,315 -- -- Lease obligation payable, less current portion............................... -- 64,351 210,842 46,838 220,028 Redeemable convertible preferred stock................................. -- -- 24,527,073 24,508,053 12,581,906 Total stockholders' equity (deficit).................... $19,409,847 $25,950,856 $(24,248,340) $(18,043,081) $(10,751,850)
The Company has paid no cash dividends since inception. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company for the years ended December 31, 1997, 1996 and 1995 should be read in conjunction with the accompanying audited financial statements and the related notes thereto. 15 17 This report may contain certain forward looking statements which involve risks and uncertainties. Such statements are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain factors which may cause the Company's plans and results to differ significantly from the plans and results discussed in forward looking statements. Factors that may cause such differences include, but are not limited to: (i) the scope and results of preclinical and clinical testing, including the progress and results of the Phase II rotavirus clinical trial and the further review of the Phase I and Phase II Adjumer(TM)-formulated influenza vaccine results and further clinical or preclinical testing after evaluation of the results; (ii) the progress of the Company's research and development programs, including further development of the Adjumer(TM) delivery system; (iii) changes in existing and potential relationships with corporate collaborators; (iv) the Company's ability to compete successfully with larger companies; (v) risks of failure inherent in product development based on new technologies and novel delivery systems; (vi) the Company's ability to attract and retain qualified personnel; (vii) the time and costs of obtaining regulatory approvals, patents, proprietary rights and licenses; (viii) the ability of the Company to establish development and commercialization capacities or relationships; (ix) the costs of manufacturing; and (x) the Company's ability to secure future funding. OVERVIEW Virus Research Institute, Inc. (the "Company") is engaged in the discovery and development of systems for the delivery of vaccines and immunotherapeutics, and improved and novel vaccines for adults and children. The Company is developing a portfolio of proprietary vaccine delivery systems designed to improve the efficacy, lower the cost of administration and improve patient compliance for a variety of vaccine products. The Company and its collaborators currently are applying the Company's vaccine delivery systems to develop vaccines for the prevention of influenza, Lyme disease, respiratory syncytial virus (RSV), and H. pylori infections. The Company has entered into long-term collaboration agreements with Pasteur Merieux Connaught (PMC), Pasteur Merieux-OraVax (PM-O) and CSL, Ltd. pursuant to which they may utilize the Company's vaccine delivery systems in developing a number of vaccines. During 1997, the Company entered into a collaboration with SmithKline Beecham (SB) for the development and commercialization of the Company's oral rotavirus vaccine. The Company is also developing its own proprietary vaccine, utilizing antigens licensed exclusively by the Company, for the virus causing genital herpes, HSV2. In addition, the Company has acquired the exclusive license to Therapore(TM), a novel delivery system for the delivery of immunotherapeutics for chronic viral infections and cancers. The Company is in the development stage and has devoted substantially all of its resources to the research and development of its vaccine delivery systems and vaccine candidates and general and administrative expenses. Through December 31, 1997 the Company has not generated any revenue from product sales, but has received an aggregate of $13,584,000 in revenues from licensing and option agreements, research and development agreements and grants, and interest income. There can be no assurance that the Company will receive such revenue in the future. The Company has realized losses in every year since inception, principally as a result of expenditures incurred in its research and development programs. The Company expects to continue to incur significant operating losses over the next several years due primarily to expanded research and development efforts, preclinical and clinical testing of its product candidates, investment in new technologies, investment in production capabilities for certain product candidates and expenditures for commercialization activities. The Company's results of operations may vary significantly from quarter to quarter and year to year due to the timing of license and milestone payments, development expenditures and other factors. NEW DEVELOPMENTS Preliminary results from the Company's Phase I/II clinical trial of its rotavirus vaccine candidate became available during the first quarter of 1997. Rotavirus infections are a major cause of acute diarrhea and dehydration in infants. The clinical trial was a double-blinded, placebo controlled study designed to define the optimal vaccine dose and optimal age for immunization. The results demonstrated that the vaccine was 16 18 generally well tolerated in younger infants and elicited broad immune responses in all infants. Based on these findings and the results of an earlier Phase I study, the Company initiated a Phase II efficacy study during the second quarter of 1997. This trial, which is being conducted at four U.S. medical centers, is designed to examine the vaccine's ability to prevent rotavirus disease and to further study the safety of the vaccine. A total of 215 infants were enrolled in the study and have been immunized with the vaccine. Results from the study are expected to be available during 1998. The Company cautions investors that the presence of statistically significant results in one clinical trial does not ensure that these results will be repeated in subsequent trials. During 1997, the Company established a collaboration with SB to develop and commercialize the Company's rotavirus vaccine. The Company will be responsible for the continuation of the Phase II efficacy study as discussed above. Following successful completion of the Phase II trial, SB will assume responsibility for and fund all subsequent clinical and other development activities. The Company will be entitled to receive milestone payments and royalties on vaccine sales under the agreement which grants SB exclusive worldwide marketing rights to the rotavirus vaccine. Based on the results of an earlier Phase I clinical trial, the Company's collaborator, PMC, conducted a Phase II safety and immunogenicity clinical trial of an Adjumer(TM)-formulated influenza vaccine during 1997. In the Phase I study conducted in France, 48 young and 41 elderly adults were given single injections of either the vaccine formulated with Adjumer(TM) or the same vaccine without Adjumer(TM). A total of 430 elderly adults participated in the Phase II study, which was conducted in Peru. Preliminary results of the Phase II clinical trial confirmed that the Adjumer(TM)-formulated vaccine was well tolerated. However, results of the Phase II study appear to be inconsistent in certain respects with Phase I results. The degree of improvement in immune responses elicited by the Adjumer(TM) influenza vaccine was less in comparison to the control group than was elicited in the Phase I study. At the same time, certain control group results also appear to be significantly higher in Phase II than in Phase I. The Company and PMC are currently analyzing and assessing the results of the Phase II study to determine the appropriate next steps to take with the clinical development of the product. The Adjumer(TM) research and development program with PMC, which encompasses a number of additional vaccine products, continues. During 1997, the Company was granted an exclusive worldwide license by Harvard University to Therapore(TM), a novel immunotherapeutic delivery system. Therapore(TM) will initially be evaluated in therapies to deliver products for the treatment of chronic viral infections and cancers. Under the terms of the agreement, the Company will be obligated to pay license fees, milestone payments and royalties to Harvard. In January 1998, the Company entered into a license agreement with Heska Corporation (Heska) to collaborate on the development and commercialization of a number of Heska's animal health vaccines through the use of Adjumer(TM). Under the terms of the agreement, based on progress in development, the Company will be entitled to receive license fees, milestone payments and royalties. RESULTS OF OPERATIONS REVENUE
YEAR ENDED DECEMBER 31, -------------------------- 1997 1996 1995 ------ ------ ------ (IN THOUSANDS) Licensing and option..................................... $ 906 $4,520 $ 770 Research and development................................. 1,600 1,477 1,068 Interest income.......................................... 1,299 851 126 ------ ------ ------ Total revenue.................................. $3,805 $6,848 $1,964 ====== ====== ======
Total revenue declined by $3,043,000 to $3,805,000 in 1997 from $6,848,000 in 1996 and increased by $4,884,000 in 1996 from $1,964,000 in 1995. Licensing and option revenue declined by $3,614,000 from $4,520,000 in 1996 to $906,000 in 1997 due to the receipt in 1996 of $4,500,000 for the achievement of 17 19 milestones pursuant to the agreement with PMC. Revenue in 1997 consisted primarily of $650,000 related to agreements with PM-O. Revenue from licensing and option sources in 1995 consisted primarily of $750,000 received under a collaboration agreement with Chiron Corporation. Research and development revenue increased by $123,000 to $1,600,000 in 1997 from $1,477,000 in 1996. During 1997, the greater part of research and development revenue was generated from agreements with PMC and PM-O. The Company's research and development revenue in 1996 included $1,250,000 received from PMC while research and development revenue in 1995 consisted primarily of a payment of $625,000 received in conjunction with the PMC agreement. Interest income increased by $448,000 to $1,299,000 in 1997 from $851,000 in 1996 and by $725,000 in 1996 from $126,000 in 1995. The increase is due to an increase in cash, cash equivalents and investments derived principally from the proceeds of the Company's initial public offering. EXPENSES
YEAR ENDED DECEMBER 31, --------------------------- 1997 1996 1995 ------- ------ ------ (IN THOUSANDS) Research and development................................ $ 7,557 $5,263 $5,734 General and administrative.............................. 2,345 2,328 1,855 Depreciation............................................ 401 673 584 Interest and other...................................... 66 165 88 ------- ------ ------ Total expenses................................ $10,369 $8,429 $8,261 ======= ====== ======
The Company's total expenses increased by $1,940,000 to $10,369,000 in 1997 from $8,429,000 in 1996 and increased by $168,000 in 1996 from $8,261,000 in 1995. Research and development expenses increased by $2,294,000 to $7,557,000 in 1997 from $5,263,000 in 1996. The increase is primarily attributable to costs associated with the polyphosphazene manufacturing and scale up process and to an increase in rotavirus clinical trial costs. Research and development expenses declined by $471,000 to $5,263,000 in 1996 from $5,734,000 in 1995 principally due to a reduction in outside consulting costs, the conclusion of certain sponsored research agreements and a reduction in polyphosphazene manufacturing costs. General and administrative expenses increased slightly, by $17,000, to $2,345,000 in 1997 from $2,328,000 in 1996. A reduction in foreign withholding taxes associated with milestone payments from PMC was offset by higher investor relations and other costs associated with being a public company. General and administrative costs increased by $473,000 to $2,328,000 in 1996 from $1,855,000 in 1995 principally due to an increase in compensation and recruiting costs, and the payment of $250,000 in foreign withholding taxes associated with milestone payments from PMC. These increases were partially offset by reductions in consulting and legal costs. Depreciation expense declined $272,000 to $401,000 in 1997 from $673,000 in 1996 as a result of the full depreciation of various leasehold improvements. From 1995 to 1996, depreciation expense increased $89,000 to $673,000 in 1996 from $584,000 in 1995 due to the Company's increased investment in laboratory equipment and leasehold improvements during that time.. Interest and other expense declined $99,000 to $66,000 in 1997 from $165,000 in 1996 and increased by $77,000 in 1996 from $88,000 in 1995. Interest and other expense in 1996 reflects the increased costs associated with short term loans entered into in 1995 and 1996. These short term loans were either repaid or converted into common stock upon completion of the Company's initial public offering. LIQUIDITY AND CAPITAL RESOURCES From inception (February 11, 1991) through December 31, 1997, the Company's cash expenditures have exceeded revenues. The Company's operations have been funded principally through the sale of equity, loans from stockholders, equipment lease financing and payments under licensing, option and research and development agreements. Net cash used by the Company's operations since inception was $30,088,000, primarily to fund research and development efforts and general and administrative expenses. Since inception the Company has incurred $3,149,000 in capital expenditures, primarily for leasehold improvements and equipment for the Company's laboratories. During the year ended December 31, 1997 the Company incurred 18 20 $235,000 in capital expenditures primarily on expenditures required for the polyphosphazene manufacturing process and on improvements to its laboratory facilities. The Company anticipates incurring approximately $400,000 in capital expenditures during 1998, primarily on equipment necessary for the polyphosphazene manufacturing process. From inception through December 31, 1997, the Company raised net proceeds of approximately $51,829,000 through the sale of equity securities. Included in this amount are net proceeds of $24,743,000 from the Company's initial public offering in 1996 and the conversion to common stock of an aggregate of $7,974,000 in notes payable to certain stockholders. In addition, from inception the Company has funded $751,000 of capital expenditures through sale and leaseback transactions. In December 1994, PMC made a $3,000,000 equity investment in the Company in connection with the execution of a collaboration agreement relating to Adjumer(TM). In January 1996, PMC and OraVax, Inc. each made an equity investment of $250,000 in connection with the execution of an option agreement relating to VibrioVec(TM). PMC made an additional equity investment of $1,000,000 in April 1996 associated with the Adjumer(TM) collaboration agreement. These amounts are included in the $51,829,000 referenced above. As of December 31, 1997 the Company's federal net operating loss carryforwards were approximately $12,480,000. If not used, the tax loss carryforwards will expire at various dates through 2012. The Company's ability to use these carryforwards is subject to limitations resulting from an ownership change as defined in Internal Revenue Code Sections 382 and 383. See Note H of Notes to Financial Statements. The Company has undertaken an assessment of the cost and impact on operations of addressing the Year 2000 issue in connection with its computer systems. As a result of such assessment, the Company believes that all of its major software will be Year 2000 compliant and the Company does not believe the Year 2000 issue will have a material impact on its business, operations or financial condition. The Company expects to incur substantial additional costs, including those related to research and development activities, preclinical studies, clinical trials, obtaining regulatory approvals, process scale up and manufacture and the expansion of its facilities. The Company anticipates that its existing funds, which include the proceeds from its initial public offering and interest earned thereon, should be sufficient to fund its operating and capital requirements as currently planned for the next twenty months. However, the Company's cash requirements may vary materially from those now planned, due to many factors, including, but not limited to, the progress of the Company's research and development programs, the scope and results of preclinical and clinical testing, changes in existing and potential relationships with corporate collaborators, the time and cost in obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the ability of the Company to establish development and commercialization capacities or relationships, the costs of manufacturing and other factors. In the future, the Company may need to raise substantial additional funds through further financing, including public or private equity offerings and collaborations with corporate partners. There can be no assurance that funds will be available on terms acceptable to the Company, if at all. If adequate funds are not available, the Company may be required to delay, scale back, or eliminate certain of its product development programs or to license to others the right to commercialize products or technologies the Company would otherwise seek to develop and commercialize itself, any of which could have a material adverse effect on the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 19 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding Directors required by this Item is incorporated by reference to the Section entitled "Proposal 1: Election of Directors" of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders (the "Proxy Statement"). The information regarding Executive Officers is included in Part I of this Form 10-K. The information regarding Compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the Section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the Section entitled "Compensation of Executive Officers" of the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the Section entitled "Security Ownership of Management and Certain Beneficial Owners" of the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the Section entitled "Certain Relationships and Related Transactions" of the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements are filed as part of this Form 10-K.
PAGE ---- Report of Independent Auditors.............................. 24 Balance Sheets as of December 31, 1997 and 1996............. 25 Statements of Operations for the years ended December 31, 1997, 1996 and 1995, and for the period February 11, 1991 (Inception) through December 31, 1997..................... 26 Statement of Changes in Stockholders' Equity (Deficit) for the period February 11, 1991 (Inception) through December 31, 1997......................................... 27 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995, and for the period February 11, 1991 (Inception) through December 31, 1997..................... 28 Notes to Financial Statements............................... 29
2. Financial Statement Schedule and Auditors' Report Schedules are omitted since the required information is inapplicable or because the information required is shown in the Financial Statements or Notes thereto. 20 22 3. Exhibits The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission.
EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1(2) Amended and Restated Certificate of Incorporation of Virus Research Institute, Inc. 3.2(2) Amended and Restated By-Laws of Virus Research Institute, Inc. 10.1(1) Virus Research Institute, Inc. 1992 Equity Incentive Plan, as amended and restated. 10.2(1) Form of Stock Option Agreement. 10.3(3) Lease dated December 1, 1996, between the Registrant and Moulton Realty Company. 10.4(1) Series D Convertible Preferred Stock Purchase Agreement dated December 20, 1994. 10.5(1) Series D Convertible Preferred Stock Purchase Agreement dated January 5, 1996. 10.6(1) Second Amended and Restated Stockholders Agreement dated April 8, 1994 and amendments. 10.7(1) Form of Warrant Agreement dated as of February 10, 1994. 10.8(1) Form of Warrant to purchase shares of Common Stock dated February 10, 1994 issued pursuant to Exhibit 10.7. 10.9(1) Loan Agreement dated as of September 14, 1995 between the Registrant and certain stockholders, with forms of Convertible Promissory Note and Warrant Agreement attached. 10.10(1) Form of Warrant to purchase shares of Common Stock dated December 14, 1995 issued pursuant to Exhibit 10.9. 10.11(1) Warrants issued to Comdisco, Inc. ("Comdisco") to purchase shares of Series A Preferred Stock and Series C Preferred Stock. 10.12(1) Master Lease Agreement dated as of August 31, 1992, between the Registrant and Comdisco. 10.13(1) License Agreement, dated as of May 1, 1992, between the Registrant and the President and Fellows of Harvard College ("Harvard") as amended. 10.14(1) License and Clinical Trials Agreement, dated as of February 27, 1995, between the Registrant and The James N. Gamble Institute of Medical Research (assigned to Children's Hospital of Cincinnati). 10.15(1) License Agreement, dated as of March 12, 1995, between the Registrant, Harvard and Dana-Farber Cancer Institute. 10.16(1) License Agreement, dated December 6, 1991, between the Registrant and Massachusetts Institute of Technology. 10.17(1) License Agreement, dated March 8, 1995, between the Registrant and The Penn State Research Foundation. 10.18(1) License Agreement, dated as of December 13, 1994, between the Registrant and Pasteur Merieux Serums & Vaccins S.A. ("Pasteur Merieux"). 10.19(1) License Agreement, dated as of August 2, 1995, between the Registrant and Pasteur Merieux. 10.20(1) Option Agreement, dated as of November 22, 1995, among the Registrant, Pasteur Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C. relating to PCPP. 10.21(1) Option Agreement dated as of November 22, 1995, among the Registrant, Pasteur Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C. relating to VibrioVec(TM).
21 23
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.22(1) Research Agreement, dated January 10, 1996, between the Registrant and CSL Limited. 10.23(1) Collaborative Research and License Agreement, dated as of June 22, 1995, between the Registrant and SmithKline Beecham plc. 10.24(1) Research and Development License and Option for Commercial License Agreement, dated as of December 28, 1995, between the Registrant and Chiron Corporation. 10.25(4) License Agreement, dated as of December 1, 1997, between the Registrant and SmithKline Beecham PLC. 10.26(4) License Agreement, dated as of March 25, 1997, among the Registrant, Pasteur Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C. 10.27(4) License Agreement, dated as of March 28, 1997, among the Registrant and Harvard. 10.28(4) License Agreement, dated as of December 1, 1997, among the Registrant, Pasteur Merieux, OraVax, Inc., OraVax Merieux Co. and Merieux OraVax S.N.C. 11.1 Statement Regarding Computation of Earnings Per Share. 23.1 Consent of Richard A. Eisner & Company, LLP. 27.1 Financial Data Schedule.
- --------------- (1) Incorporated by reference to the relevant exhibit to Virus Research Institute, Inc.'s Registration Statement on Form S-1 (File No. 333-3378) as filed with the SEC on June 6, 1996. (2) Incorporated by reference to the relevant exhibit to Virus Research Institute, Inc.'s Form 10-Q for the quarter ended June 30, 1996 as filed with the SEC on August 8, 1996. (3) Incorporated by reference to the relevant exhibit to Virus Research Institute, Inc.'s Form 10-K for the year ended December 31, 1996 as filed with the SEC on March 26, 1997. (4) Confidential treatment requested. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the fourth quarter of fiscal 1997. 22 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth of Massachusetts on the 17th day of March, 1998. VIRUS RESEARCH INSTITUTE, INC. By: /s/ J. BARRIE WARD, PH.D. ------------------------------------ J. Barrie Ward, Ph.D. Chief Executive Officer and Chairman of the Board SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ J. BARRIE WARD, PH.D. Chief Executive Officer and March 17, 1998 - ----------------------------------------------------- Chairman of the Board J. Barrie Ward, Ph.D. (principal executive officer) /s/ WILLIAM A. PACKER President, Chief Financial March 17, 1998 - ----------------------------------------------------- Officer and Director William A. Packer (principal financial officer) /s/ LISA P. MCGILLIS Director of Finance March 17, 1998 - ----------------------------------------------------- (principal accounting Lisa P. McGillis officer) Director March 17, 1998 - ----------------------------------------------------- John W. Littlechild /s/ ALAN M. MENDELSON Director March 17, 1998 - ----------------------------------------------------- Alan M. Mendelson /s/ FREDERICK W. KYLE Director March 17, 1998 - ----------------------------------------------------- Frederick W. Kyle /s/ ROBERT J. HENNESSEY Director March 17, 1998 - ----------------------------------------------------- Robert J. Hennessey
23 25 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Virus Research Institute, Inc. Cambridge, Massachusetts We have audited the accompanying balance sheets of Virus Research Institute, Inc. (a development stage company) as at December 31, 1997 and December 31, 1996, and the related statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, and for the period from February 11, 1991 (inception) through December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the financial position of Virus Research Institute, Inc. at December 31, 1997 and December 31, 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, and the period from February 11, 1991 (inception) through December 31, 1997 in conformity with generally accepted accounting principles. RICHARD A. EISNER & COMPANY, LLP Cambridge, Massachusetts January 30, 1998 24 26 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- CURRENT ASSETS: Cash and cash equivalents (Note E)....................... $ 2,488,963 $ 15,209,180 Marketable securities (Note E)........................... 15,968,923 10,339,985 Contract receivable (Note C)............................. 1,000,000 -- Interest receivable...................................... 352,186 218,285 Prepaid expenses......................................... 273,224 220,534 Other current assets..................................... 42,616 659 ------------ ------------ Total current assets.................................. 20,125,912 25,988,643 NONCURRENT ASSETS: Marketable securities (Note E)........................... 0 499,891 Leasehold improvements and equipment (net of accumulated depreciation and amortization of $2,416,568 at December 31, 1997 and $2,015,483 at December 31, 1996) (Note D).............................................. 715,234 881,363 Other assets............................................. 37,193 67,634 ------------ ------------ Total noncurrent assets............................... 752,427 1,448,888 ------------ ------------ Total assets..................................... $ 20,878,339 $ 27,437,531 ============ ============ CURRENT LIABILITIES: Accounts payable......................................... $ 24,769 $ 43,809 Accrued consulting and research fees..................... 709,295 810,677 Accrued employee benefits................................ 91,636 71,636 Accrued legal............................................ 192,453 112,000 Other accrued expenses................................... 377,987 229,123 Current portion of lease obligation payable (Note F(2))................................................. 72,352 155,079 ------------ ------------ Total current liabilities............................. 1,468,492 1,422,324 Lease obligation payable, less current portion (Note F(2)).................................................... -- 64,351 Commitments (Notes C and F) Stockholders' equity (Notes A and G): Preferred stock -- $.001 par value; 5,000,000 shares authorized, none issued............................... -- -- Common stock -- $.001 par value; 30,000,000 shares authorized; 8,928,314 shares issued at December 31, 1997 and 8,845,027 shares issued at December 31, 1996.................................................. 8,928 8,845 Additional paid-in capital............................... 51,930,441 51,907,179 Deficit accumulated during the development stage......... (32,529,522) (25,965,168) ------------ ------------ Total stockholders' equity............................ 19,409,847 25,950,856 ------------ ------------ Total liabilities and stockholders' equity....... $ 20,878,339 $ 27,437,531 ============ ============
See Notes to Financial Statements 25 27 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, FEBRUARY 11, 1991 ----------------------------------------- (INCEPTION) THROUGH 1997 1996 1995 DECEMBER 31, 1997 ----------- ----------- ----------- ------------------- REVENUE (NOTE B(1)): Licensing and option revenue..... $ 905,556 $ 4,520,000 $ 770,000 $ 6,895,556 Research and development revenue........................ 1,599,982 1,476,449 1,067,480 4,165,180 Interest income.................. 1,298,857 851,082 126,249 2,523,389 ----------- ----------- ----------- ------------ Total revenue.......... 3,804,395 6,847,531 1,963,729 13,584,125 EXPENSES: Research and development (Note C)............................. 7,557,055 5,262,507 5,734,427 31,566,535 General and administrative....... 2,344,638 2,328,204 1,854,732 11,308,997 Depreciation..................... 401,085 673,436 583,654 2,518,916 Interest and other expense....... 65,971 165,320 87,944 719,199 ----------- ----------- ----------- ------------ Total expenses......... 10,368,749 8,429,467 8,260,757 46,113,647 ----------- ----------- ----------- ------------ Net loss............... $(6,564,354) $(1,581,936) $(6,297,028) $(32,529,522) =========== =========== =========== ============ Basic and diluted net loss per common share................... $ (0.74) =========== Shares used in computing basic and diluted net loss per common share.......................... 8,897,784 Pro forma basic and diluted net loss per common share.......... $(0.21) $ (1.03) =========== =========== Shares used in computing pro forma basic and diluted net loss per common share.......... 7,639,726 6,104,671
See Notes to Financial Statements 26 28 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
DEFICIT COMMON STOCK ACCUMULATED -------------------- ADDITIONAL DURING PAR PAID-IN DEVELOPMENT SHARES VALUE CAPITAL STAGE TOTAL ---------- ------- ----------- ------------ ------------ Sale of common stock.................... 1,667 $ 2 $ 498 $ -- $ 500 Net loss -- February 11, 1991 (inception) through December 31, 1991.................................. (862,597) (862,597) ---------- ------- ----------- ------------ ------------ Balance December 31, 1991............... 1,667 2 498 (862,597) (862,097) Sale of common stock.................. 607 1 1,819 1,820 Recapitalization: 1,000 for 1 stock split............................... 2,271,060 2,271 (2,271) -- Surrender of common stock by HCV II... (1,291,667) (1,292) 905 (387) Sale of common stock.................. 48,275 48 7,193 7,241 Net loss for the year................. (3,967,604) (3,967,604) ---------- ------- ----------- ------------ ------------ Balance December 31, 1992............... 1,029,942 1,030 8,144 (4,830,201) (4,821,027) Cancellation of shares pursuant to founders' plan amendment............ (282,000) (282) (564) (846) Purchase and cancellation of treasury shares.............................. (105,917) (106) (2,662) (2,768) Stock options exercised............... 83 -- 12 12 Net loss for the year................. (5,927,221) (5,927,221) ---------- ------- ----------- ------------ ------------ Balance December 31, 1993............... 642,108 642 4,930 (10,757,422) (10,751,850) Stock options exercised............... 1,475 2 321 323 Founder option exercised.............. 43,333 43 37,007 37,050 Stock warrants exercised.............. 185 -- 178 178 Net loss for the year................. (7,328,782) (7,328,782) ---------- ------- ----------- ------------ ------------ Balance December 31, 1994............... 687,101 687 42,436 (18,086,204) (18,043,081) Stock options exercised............... 2,903 3 1,766 1,769 Common stock warrants issued in conjunction with notes payable...... 90,000 90,000 Net loss for the year................. (6,297,028) (6,297,028) ---------- ------- ----------- ------------ ------------ Balance December 31, 1995............... 690,004 690 134,202 (24,383,232) (24,248,340) Conversion of notes payable to investors........................... 217,927 218 987,874 988,092 Cashless exercise of stock warrants... 17,363 17 (17) -- Conversion of redeemable convertible preferred stock..................... 5,553,579 5,554 26,003,825 26,009,379 Stock options exercised............... 66,154 66 40,900 40,966 Shares issued at Initial Public Offering............................ 2,300,000 2,300 27,597,700 27,600,000 Costs of offering..................... (2,857,305) (2,857,305) Net loss for the year................. (1,581,936) (1,581,936) ---------- ------- ----------- ------------ ------------ Balance December 31, 1996............... 8,845,027 8,845 51,907,179 (25,965,168) 25,950,856 Cashless exercise of stock warrants... 20,924 21 (21) -- Stock options exercised............... 62,363 62 23,283 23,345 Net loss for the year................. (6,564,354) (6,564,354) ---------- ------- ----------- ------------ ------------ Balance December 31, 1997............... 8,928,314 $ 8,928 $51,930,441 $(32,529,522) $ 19,409,847 ========== ======= =========== ============ ============
See Notes to Financial Statements 27 29 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, FEBRUARY 11, 1991 ----------------------------------------- (INCEPTION) THROUGH 1997 1996 1995 DECEMBER 31, 1997 ------------ ------------ ----------- ------------------- Cash flows from operating activities: Net loss........................... $ (6,564,354) $ (1,581,936) $(6,297,028) $(32,529,522) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization... 409,077 700,188 599,435 2,569,442 Conversion of accrued interest to preferred stock............ -- 46,026 -- 58,373 Changes in operating assets and liabilities: Contract receivable........... (1,000,000) -- -- (1,000,000) (Increase) decrease in prepaid expenses and other assets..................... (198,108) (164,869) 112,784 (582,093) Increase in accounts payable and accrued expenses....... 128,896 127,320 157,611 1,396,140 ------------ ------------ ----------- ------------ Net cash used in operating activities............... (7,224,489) (873,271) (5,427,198) (30,087,660) Cash flows from investing activities: Purchases of marketable securities, net of redemptions.............. (5,129,047) (10,839,876) -- (15,968,923) Capital expenditures............... (234,955) (349,312) (129,561) (3,149,247) Other.............................. -- -- -- (46,182) ------------ ------------ ----------- ------------ Net cash used in investing activities............... (5,364,002) (11,189,188) (129,561) (19,164,352) Cash flows from financing activities: Proceeds from notes payable........ -- -- 1,000,000 7,973,668 Sale and leaseback related to capital acquisitions............ -- -- 250,000 751,311 Principal payments on lease obligations..................... (155,070) (174,503) (183,344) (839,265) Sale of common stock............... 23,344 27,640,966 1,769 27,713,203 Sale of preferred stock............ -- 1,500,140 -- 19,258,613 Offering costs..................... -- (2,875,140) (980) (3,112,941) Founders' shares reacquired........ -- -- -- (846) Purchase of treasury stock......... -- -- -- (2,768) ------------ ------------ ----------- ------------ Net cash provided by (used in) financing activities............... (131,726) 26,091,463 1,067,445 51,740,975 Net increase (decrease) in cash and cash equivalents................... (12,720,217) 14,029,004 (4,489,314) 2,488,963 Cash and cash equivalents, beginning of period.......................... 15,209,180 1,180,176 5,669,490 -- ------------ ------------ ----------- ------------ Cash and cash equivalents, end of period............................. $ 2,488,963 $ 15,209,180 $ 1,180,176 $ 2,488,963 ============ ============ =========== ============ Supplemental disclosure of cash flow information: Interest paid during the period.... $ 27,530 $ 63,473 $ 61,915 $ 258,193
See Notes E, F and G with respect to noncash financing and leasing transactions. See Notes to Financial Statements 28 30 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (NOTE A) -- THE COMPANY: Virus Research Institute, Inc. (the "Company") is a development stage company engaged in the discovery and development of systems for the delivery of vaccines and immunotherapeutics, and improved and novel vaccines for adults and children. The Company has incurred substantial losses since inception while it has been in the development stage and such losses are expected to continue. In June 1996, the Company completed an initial public offering of 2,300,000 shares of common stock for $12.00 per share, resulting in net proceeds of approximately $24,743,000. The Company anticipates that the proceeds from the initial public offering in conjunction with payments received from collaborative partners will allow the Company to meet its obligations through December 31, 1999. (NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (1) Revenue recognition: Nonrefundable, noncreditable licensing and option fees and milestone payments are recognized when they are earned in accordance with the performance requirements and contractual terms. Research and development revenues and grants are recognized over the period of performance under the terms of the related agreements. Licensing revenue represents amounts paid by companies for the use of or access to the Company's proprietary technology. Option revenue represents payments for the right to evaluate the Company's proprietary technology which may or may not result in a licensing or collaborative development agreement. Research and development revenue represents amounts earned by the Company from several collaborative partners for sponsored research activities. Certain of the Company's collaborators are also stockholders of the Company. (2) Depreciation and amortization: Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the life of the lease. (3) Patent and licensing costs: As a result of research and development efforts conducted by the Company, it has received and applied for, and is in the process of applying for, a number of patents to protect proprietary inventions and licenses to use certain intellectual property. Costs incurred in connection with patent applications and licenses have been expensed as incurred and are reflected as general and administrative expenses. (4) Cash and cash equivalents: The Company considers all highly liquid investments with maturities of three months or less, when acquired, to be cash equivalents. Cash equivalents are recorded at cost, which approximates fair value. (5) Investments in marketable securities: In addition to cash equivalents, the Company has investments in corporate and municipal debt securities that are classified in the balance sheet as held-to-maturity in accordance with the provisions of Statement of Financial Accounting Standard No. 115 (SFAS No. 115), "Accounting for Certain Instruments in Debt and Equity Securities." Held-to-maturity investments are securities the Company has the positive intent and 29 31 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) ability to hold to maturity. These securities are accounted for at amortized cost, which approximates fair value. (6) Income taxes: Deferred income taxes are recognized for the tax consequences in future years for differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. (7) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used when accounting for depreciation and amortization, taxes and contingencies. (8) Stock-based compensation: In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation." The Company adopted this standard in 1996 by making the required note disclosures only. Therefore, the adoption of this standard has not had an effect on the Company's financial position or results of operations. (9) Net loss per share: During 1997, the Company adopted Statement of Financial Accounting Standard No. 128, "Earnings per Share" requiring certain changes in the calculation of per share results. As the Company has reported net losses from operations in the years presented, the computation for basic and diluted earnings per share is identical. Pro forma net loss per common share is based on the pro forma weighted average number of common shares outstanding during the periods presented as adjusted to reflect the conversion of all preferred stock on a retroactive basis as of January 1, 1995 or date of issuance, if later. (NOTE C) -- RESEARCH, LICENSE AND CONSULTING AGREEMENTS: The Company has entered into various research, license and consulting agreements to support its research and development activities. These agreements generally expire over several future years although some are automatically renewable on an annual basis unless cancelled by either party. Amounts charged to operations in connection with these agreements for the years ended December 31, 1997, 1996 and 1995 amounted to approximately $705,000, $650,000 and $1,255,000, respectively. The Company expects to incur similar expenses in future years. Some of the above agreements contain provisions for future royalties to be paid on sales of products developed under the agreements. During 1997, the Company entered into an agreement pursuant to which the Company licensed certain patents and technology to a collaborator. Under the terms of the agreement, the collaborator is required to pay the Company $400,000 for licensing rights and $600,000 for research which was completed as of Decem- 30 32 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) ber 31, 1997. The total $1,000,000 is recorded as a contract receivable at December 31, 1997. The agreement also provides for future payments contingent upon the achievement of certain milestones. (NOTE D) -- LEASEHOLD IMPROVEMENTS AND EQUIPMENT: Leasehold improvements and equipment, including approximately $413,000 acquired under capital leases, are stated at cost and are summarized as follows:
DECEMBER 31, ------------------------ 1997 1996 ---------- ---------- Laboratory furniture, fixtures and equipment................ $1,537,121 $1,366,074 Office furniture, fixtures and equipment.................... 291,963 246,800 Leasehold improvements...................................... 1,302,718 1,283,972 ---------- ---------- Total............................................. 3,131,802 2,896,846 Less accumulated depreciation and amortization.............. 2,416,568 2,015,483 ---------- ---------- Balance........................................... $ 715,234 $ 881,363 ========== ==========
(NOTE E) -- INVESTMENTS IN DEBT SECURITIES: As of December 31, 1997 and 1996, the aggregate fair value of the held-to-maturity securities was $15,966,179 and $16,866,045, respectively. These amounts include an unrealized loss of $2,744 at December 31, 1997 and an unrealized gain of $26,056 at December 31, 1996. These securities are reflected in the balance sheet as follows:
DECEMBER 31, -------------------------- 1997 1996 ----------- ----------- Cash equivalents.......................................... $ -- $ 6,000,113 Marketable securities, maturing within one year........... $15,968,923 $10,339,985 Marketable securities, long term.......................... $ -- $ 499,891
(NOTE F) -- COMMITMENTS: (1) Operating lease: The Company has an operating lease for office and research facilities which expires in December 2001. The Company has the option to renew the lease for an additional five years. The lease also provides that the Company pay all real estate taxes levied against the premises. The lease requires minimum annual rentals in 1998 through 2001 of $294,000. Rent expense for 1997, 1996 and 1995 amounted to approximately $332,000, $267,000 and $269,000, respectively. (2) Capital lease: The Company has entered into several capital leases for equipment, including sale and leaseback transactions. Future minimum payments under these leases at December 31, 1997 amount to $72,352. 31 33 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (NOTE G) -- CAPITALIZATION: (1) Warrants: The Company has issued warrants to purchase common and preferred stock in connection with the issuance of notes payable and the establishment of capital leases. Warrants outstanding at December 31, 1997 are as follows:
EXERCISE NUMBER OF PRICE SECURITY SHARES PER SHARE EXPIRATION DATE - -------- --------- --------- ----------------- Common stock............................... 23,006 $ .96 February 9, 2004 Common stock............................... 49,578 1.95 December 14, 2005 Common stock............................... 11,000 9.60 April 12, 2001
The warrant agreements contain antidilution provisions related to future issuances of stock. (2) Common stock options: The Company has adopted an equity incentive plan providing for the issuance of restricted stock and the granting of options to purchase up to a combined total of 1,751,176 shares of common stock. The plan provides for the granting of both incentive stock options and nonstatutory stock options. The exercise price for any incentive stock options cannot be less than the fair market value on the date of grant, while the exercise price for nonstatutory options will be determined by the Board of Directors. The vesting periods for all options are determined by the Board of Directors. The Company had the following option activity during 1995, 1996 and 1997:
WEIGHTED AVERAGE NUMBER OF OPTION PRICE SHARES PER SHARE --------- ---------------- Balance -- December 31, 1994............................. 750,220 $ .80 Granted................................................ 12,142 $1.85 Exercised.............................................. (2,903) $ .61 Cancelled.............................................. (11,584) $ .96 --------- Balance -- December 31, 1995............................. 747,875 $ .82 Granted................................................ 325,172 $6.36 Exercised.............................................. (66,154) $ .62 Cancelled.............................................. (14,515) $1.45 --------- Balance -- December 31, 1996............................. 992,378 $2.64 Granted................................................ 104,412 $6.97 Exercised.............................................. (62,363) $ .37 Cancelled.............................................. (1,765) $5.09 --------- Balance -- December 31, 1997............................. 1,032,662 $3.23 ---------
Options for 539,569 shares are exercisable at December 31, 1997 at a weighted average option price of $1.90 per share, with a weighted average remaining contractual life of approximately 7 years. At December 31, 1997, there were 585,545 shares available for future grant. 32 34 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (3) Stock-based compensation: The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plan. There was no compensation expense recognized in 1997, 1996 or 1995. If the Company had elected to recognize compensation cost for the plan based on the fair value at the grant date for awards under the plan, consistent with the method prescribed by SFAS No. 123, net loss per share would have been changed to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net loss...................... As reported $(6,564,354) $(1,581,936) $(6,297,028) Pro forma (6,776,699) (1,729,019) (6,297,309) Net loss per share............ As reported $ (.74) $ ( .21) $ (1.03) Pro forma (.76) (.23) (1.03)
The fair value of the Company's stock options used to compute pro forma net loss and net loss per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 1997, 1996 and 1995: dividend yield of 2.5%; expected volatility of 45%; a risk free interest rate of 7.3%; and an expected holding period of nine years. The weighted average grant date fair value of options granted was $2.37 per share, $3.21 per share, and $3.07 per share for the years ended December 31, 1997, 1996 and 1995, respectively. (NOTE H) -- INCOME TAXES: Through December 31, 1993, pursuant to provisions of the Internal Revenue Code, the Company was deferring all start-up costs because operations, as defined by the Internal Revenue Code, had not commenced. In addition, the Company elected to defer all research and development costs until revenues were generated. Effective January 1994, the Company began generating revenues and commenced operations for tax purposes and is amortizing all costs deferred through December 31, 1993 over 60 months. From January 1994 forward, the Company continues to defer internal research and development costs and amortizes such costs over 60 months for tax purposes. At December 31, 1997 and 1996, the Company had no current or deferred tax liability. The components of the Company's net deferred tax asset and the tax effects of the primary differences giving rise to the Company's deferred tax asset are as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------ 1997 1996 1995 ------------ ----------- ----------- Net operating loss carryforwards................... $ 4,900,000 $ 3,100,000 $ 3,000,000 Deferred start-up costs............................ 200,000 380,000 550,000 Deferred research and development costs............ 6,800,000 5,944,000 5,415,000 Depreciation....................................... 315,000 250,000 164,000 Research and development credit.................... 561,000 227,000 110,000 Other.............................................. 47,000 36,000 171,000 ------------ ----------- ----------- Deferred tax asset................................. 12,823,000 9,937,000 9,410,000 Valuation allowance................................ (12,823,000) (9,937,000) (9,410,000) ------------ ----------- ----------- Net deferred tax asset............................. $ -- $ -- $ -- ============ =========== ===========
33 35 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1997, the Company's net operating loss carryovers for federal income tax purposes amount to approximately $12,480,000 and expire through 2012. The Company's ability to use these carryforwards is subject to limitations resulting from an ownership change as defined in Internal Revenue Code Sections 382 and 383. 34 EX-10.25 2 LICENSE AGREEMENT (VIRUS & SMITHKLINE) 1 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 1. Exhibit 10.25 LICENSE AGREEMENT This License Agreement ("Agreement") is made effective as of this first day of December 1997, between VIRUS RESEARCH INSTITUTE, Inc., having a place of business at 61 Moulton Street, Cambridge, MA 02138, USA (herein referred to as "LICENSOR") and SmithKline Beecham P.L.C., having a place of business at New Horizons Court, Brentford, Middlesex TW8 9EP, United Kingdom (herein referred to as "LICENSEE"), WITNESSETH THAT: WHEREAS, LICENSOR is the owner of and/or controls all right, title and interest in certain patents, identified in Appendix A hereto, and know-how in the field of Rotavirus; and WHEREAS, LICENSEE desires to obtain certain worldwide licenses from LICENSOR under the aforesaid patents and know-how, and LICENSOR is willing to grant to LICENSEE such licenses; NOW, THEREFORE, in consideration of the covenants and obligations expressed herein and intending to be legally bound, and otherwise to be bound by proper and reasonable conduct, the parties agree as follows: 1. DEFINITIONS 1.01 "AFFILIATE(S)" shall mean any corporation, firm, partnership or other entity, whether de jure or de facto, which directly or indirectly owns, is owned by or is under common ownership with a party to this Agreement to the extent of at least fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) having the power to vote on or direct the affairs of the entity and any person, firm, partnership, corporation or other entity actually controlled by, controlling or under common control with a party to this Agreement. 1.02 "BLOCKING PATENTS" shall mean patents owned and/or controlled by THIRD PARTIES which are needed by LICENSEE for the making, having made, using, having used, importing, offering for sale, selling or having sold VACCINES 2 2. and/or technology owned and/or controlled by THIRD PARTIES which is necessary for LICENSEE in order to practice the license(s) granted by LICENSOR hereunder. For the avoidance of doubt any patents and/or patent applications and/or technology owned and/or controlled by DynCorp to which LICENSEE may acquire a licence will be considered for the purpose of this Agreement as BLOCKING PATENTS. 1.03 "COMBINATION" shall mean VACCINE wherein (a) Rotavirus antigen(s) is (are) formulated in combination with one or more additional therapeutically and/or prophylactically active antigens. 1.04 "FDA" shall mean the United States Food and Drug Administration. 1.05 "KNOW-HOW" shall mean all present and future technical information, materials and know-how which relate to (a) Rotavirus antigen(s) for use in a live attenuated vaccine against rotavirus which are now and/or at anytime during the term of this Agreement developed, owned, proprietary to and/or controlled by LICENSOR and/or to which LICENSOR has otherwise the right to grant license, which are both secret and substantial. KNOW-HOW shall include the Rotavirus 89.12 strain and any other live attenuated Rotavirus strain(s) useful or necessary for VACCINE, owned and/or controlled by LICENSOR and/or to which LICENSOR has otherwise the right to grant license and, without limitation, all chemical, pharmacological, toxicological, clinical, assay, control and manufacturing data and any other information relating thereto. KNOW-HOW shall not include any information, materials and/or know-how which are generally ascertainable from publicly available information or which subsequently become publicly available. KNOW-HOW existing as of the Effective Date is listed in Appendix B attached hereto which shall, as appropriate, be updated from time to time. LICENSOR shall identify KNOW-HOW in writing at the time of disclosure to LICENSEE. 1.06 "LICENSEE" shall mean SmithKline Beecham P.L.C. 1.07 "LICENSOR" shall mean Virus Research Institute, Inc. 1.08 "MAJOR MARKETS" shall mean the United States of America, United Kingdom, France, Germany and Italy. 3 3. 1.09 "NET SALES" shall mean the gross receipts from sales of VACCINE in the TERRITORY by LICENSEE, its AFFILIATES and/or sublicensees to THIRD PARTIES under this Agreement after deducting: (i) reasonable transportation charges, including insurance; and (ii) LICENSEE's costs for syringes and other administration devices combined with, or contained in, commercial packaging; and (iii) sales and excise taxes and duties paid by a selling party and any other governmental charges imposed upon the production, importation, use or sale of VACCINE including, without limitation, contributions and payments collected by any governmental authorities as liability provisions and/or made pursuant to governmental injury compensation schemes; and (iv) trade, quantity and cash discounts (other than cash discounts for early payments), commissions and other customary rebates; and (v) allowances or credits to customers or charges back from customers on account of rejection or return of VACCINE subject to royalty under this Agreement or on account of retroactive price reductions affecting such VACCINE; and (vi) the difference between fifty percent (50%) of the royalties paid to THIRD PARTIES as referred to in Paragraph 4.02 and the amount of royalties actually deducted under Paragraph 4.02; and (vii) the royalties payable by LICENSEE to THIRD PARTIES on the manufacture, use and/or sale of VACCINE for adjuvants and/or other technology contained in VACCINE to the extent they are not otherwise deducted pursuant to the provisions of Section 4 hereof or under Paragraph 1.09 (vi) above. Sales between or among LICENSEE and its AFFILIATES or sublicensees shall be excluded from the computation of NET SALES except where such AFFILIATES or sublicensees are end users, but NET SALES shall include the subsequent final sales to THIRD PARTIES by such AFFILIATES or sublicensees. 4 4. If VACCINE is sold as a COMBINATION, NET SALES for purposes of determining royalties on COMBINATION shall be calculated by multiplying NET SALES by the fraction A/B, where A is the invoice price of a monovalent form of VACCINE sold separately and B is the invoice price of COMBINATION. If the invoice price of a monovalent form of VACCINE is not available and the parties are unable to agree on an alternative arrangement, then royalty on COMBINATION shall be determined by multiplying NET SALES by a fraction X/Y wherein X is one (1) and Y is the total number of active antigens included in COMBINATION with all the Rotavirus antigens being counted as only one (1) antigen. 1.10 "PATENTS" shall mean all patents and patent applications which are or become owned and/or controlled, in whole or in part, by LICENSOR or to which LICENSOR otherwise has, now or in the future, the right to grant licenses, which generically or specifically claim VACCINE, a process for manufacturing VACCINE and intermediates used in such process, or a use of VACCINE. Included within the definition of PATENTS are any continuations, continuations-in-part, divisions, patents of addition, reissues, renewals or extensions (other than SPC) thereof. Also included within the definition of PATENTS are any patents and patent applications which generically or specifically claim any improvements of VACCINE or intermediates or manufacturing processes required or useful for production of VACCINE which are developed by LICENSOR and/or under which LICENSOR otherwise has the right to grant licenses or sublicenses, now or in the future, during the term of this Agreement. For the avoidance of doubt PATENTS do not include patents or patent applications which claim adjuvants, delivery systems, or other delivery vehicles or vaccines which include solely antigens other than Rotavirus antigens. The current list of patent applications and patents encompassed within PATENTS is set forth in Appendix A attached hereto. 1.11 "SPC" shall mean all Supplementary Protection Certificates for medicinal products and their equivalents provided under the Council Regulation (EEC) No. 1768/92 of June 18, 1992 which are directed to a VACCINE. 1.12 "VACCINE" shall mean any and all live attenuated Rotavirus vaccines or components thereof licensed hereunder which contain the Rotavirus 89.12 strain and/or a strain derived from the Rotavirus 89.12 strain, developed and/or owned by LICENSOR and/or to which LICENSOR has otherwise, now or in the 5 5. future, the right to grant license and/or any and all live attenuated Rotavirus vaccines or components thereof licensed hereunder which are developed and/or owned by LICENSOR and/or to which LICENSOR has otherwise, now or in the future, the right to grant license. 1.13 "VALID CLAIM" shall mean a claim of a granted PATENT which has not lapsed or been abandoned and which has not been declared invalid or unenforceable by a court of competent jurisdiction or administrative agency from which no appeal is or can be taken. 1.13 "TERRITORY" shall mean all the countries and territories of the world. 1.14 "THIRD PARTY(IES)" shall mean any person or party other than a party to this Agreement or an AFFILIATE. "Interpretative Rules". For purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires: (a) defined terms include the plural as well as the singular and the use of any gender shall be deemed to include the other gender; (b) references to "Articles", "Sections", "Paragraphs" and other subdivisions and to "Appendices", "Schedules" and "Exhibits" without reference to a document, are to designated Articles, Sections, Paragraphs and other subdivisions of, and to Appendices, Schedules and Exhibits to, this Agreement; (c) the use of the term "including" means "including but not limited to"; and (d) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision. 2. GRANT 2.01 LICENSOR hereby grants to LICENSEE and its AFFILIATES an exclusive license, with the right subject to Paragraph 2.02 to grant sublicenses, under PATENTS, KNOW-HOW and any SPC to make, have made, use, have used, sell, offer for sale, have sold, keep, import and export VACCINE and COMBINATION, in the TERRITORY, in any formulation, configuration, combination and/or delivery system, subject to the terms and conditions of this Agreement. 2.02 LICENSEE agrees to notify LICENSOR of any sublicense under PATENTS and/or KNOW-HOW it shall grant to any THIRD PARTY(IES) and, at 6 CONFIDENTIAL TREATMENT 6. LICENSOR's request, agrees to provide LICENSOR with suitably redacted versions of the sublicense agreements LICENSEE may enter into with said THIRD PARTY(IES). 2.03 Notwithstanding anything else to the contrary herein, LICENSEE agrees that PATENTS and KNOW-HOW shall be used by LICENSEE only in and for VACCINES and in accordance with this Agreement and can only be used by LICENSEE for so long as and to the extent this Agreement and the licences and rights granted hereunder are not terminated pursuant to Paragraph 10.02, 10.03, 10.04 or 10.06. 2.04 To the extent that any rights and licenses granted to LICENSEE under this Agreement are rights and licenses obtained by LICENSOR under an agreement with a THIRD PARTY ("Third Party Agreement"), then any such rights and licenses granted to LICENSEE will be subject to the terms, conditions and obligations of such Third Party Agreement. LICENSEE specifically acknowledges that the obligations contained in Sections 2.4 (c), 8 and 10 (attached hereto as Appendix E) of a certain License and Clinical Trials Agreement between LICENSOR and the James N. Gamble Institute of Medical Research ("the Gamble Agreement") will be binding on LICENSEE. 3. PAYMENTS AND ROYALTIES 3.01 LICENSEE shall make the following license fee payment to LICENSOR, which payment shall be non-refundable to LICENSEE for any reason: [*] 3.02 As consideration for the license under PATENTS granted to LICENSEE under this Agreement, LICENSEE shall pay to LICENSOR the following royalties ("Patent Royalty(ies)"): (a) [*] (b) [*] (c) [*] ; and /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 7 CONFIDENTIAL TREATMENT 7. (d) [*] provided that the VACCINE sold is covered by a VALID CLAIM in the particular country where sales are made. 3.03 As consideration for the license to KNOW-HOW granted to LICENSEE under this Agreement, LICENSEE shall pay to LICENSOR royalties on NET SALES in those countries wherein there is no granted PATENT or wherein a patent application is pending or wherein there is no VALID CLAIM ("Know-How Royalty(ies)"), provided that the making, using or selling of VACCINE actually use KNOW-HOW which LICENSOR has identified in writing as being secret and substantial at the time of disclosure to LICENSEE. The rate of the Know-How Royalties payable under this Paragraph 3.03 shall, on a country-by-country basis, be [*] that would be payable under paragraph 3.02 hereto considering the applicable portion of annual NET SALES. In the event LICENSEE, in a specific country, faces competition with a vaccine which represents [*] of NET SALES in such country, the sale of which vaccine would infringe PATENTS if sold in patented countries (a "Competitive Vaccine"), the rate of the Know-How Royalties payable by LICENSEE to LICENSOR on NET SALES in such country shall only be [*] that, considering the applicable portion of annual NET SALES, would be payable under Paragraph 3.02 hereof. LICENSEE acknowledges that the supply of the Rotavirus 89.12 strain by LICENSOR to LICENSEE shall constitute supply of KNOW-HOW which is secret, substantial and identified as being secret and substantial and that Know-How Royalties due under this Paragraph 3.03, subject to Paragraph 3.05, shall be payable on NET SALES of VACCINE which contains such strain(s) or any strain derived therefrom. 3.04 LICENSEE's royalty obligations under Paragraph 3.02 shall become effective in each country in the TERRITORY, on a country-by-country basis, at such time as there is a VALID CLAIM in such country covering the VACCINE sold and shall be applicable until expiry of the last remaining PATENT in such country. In the event that any THIRD PARTY initiates any legal or administrative proceedings challenging the validity, scope or enforceability of a PATENT in any country in the TERRITORY and a THIRD PARTY sells a Competitive Vaccine in such /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 8 CONFIDENTIAL TREATMENT 8. country, then the Patent Royalties on NET SALES pursuant to Paragraph 3.02 in such country shall be suspended during pendency of the proceedings while such Competitive Vaccine is sold in such country and a Know-How Royalty calculated pursuant to Paragraph 3.03 shall be due instead for the period specified in Paragraph 3.05 with the Know-How Royalty being [*]. If the validity, scope and enforceability of claims in the PATENT which cover VACCINE are upheld by a court or other legal or administrative tribunal from which no appeal is or can be taken, then the amount of Patent Royalties which would have been due during the period of suspension, less any amount of paid Know-How Royalties, shall be promptly paid with interests, the interest rate being the Interbank Bank of America base rate. If the claims in the PATENT which cover VACCINE are held to be invalid or otherwise unenforceable by a court or other legal or administrative tribunal from which no appeal is or can be taken then LICENSOR shall retain the Know-How Royalties paid under this Paragraph 3.04 and no further royalties under Paragraph 3.02 shall be owed in such country provided that in the event LICENSEE has paid to LICENSOR a Know-How royalty pursuant to this Paragraph 3.04 after the expiration of the period specified in Paragraph 3.05, the amount of such Know-How Royalties paid by LICENSEE shall be promptly reimbursed by LICENSOR to LICENSEE with interests. 3.05 LICENSEE's Know-How Royalty obligations under Paragraph 3.03 shall be effective, on a country-by-country basis, for a period of ten (10) years from LICENSEE's first commercial sale of VACCINE as part of a nationwide introduction of VACCINE in such country of the TERRITORY. 3.06 In the event the only remaining patent protection afforded to a PRODUCT in any country of the TERRITORY where it is sold is a SPC, LICENSEE shall pay to LICENSOR a royalty on NET SALES in that country at the applicable Patent Royalty rate pursuant to Paragraph 3.02 if LICENSEE does not face competition from a Competitive Vaccine with respect to VACCINE in that country and at the applicable Know-How royalty rate pursuant to Paragraph 3.03 if LICENSEE does face competition from a Competitive Vaccine with respect to VACCINE in that country. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 9 CONFIDENTIAL TREATMENT 9. 3.07 In the event that LICENSOR secures rights to any live attenuated Rotavirus strain(s) other than the Rotavirus 89.12 strain which LICENSEE considers is(are) useful or necessary for VACCINE, LICENSOR shall, at LICENSEE's sole option, transfer such other live attenuated Rotavirus strain(s) to LICENSEE with unrestricted rights to use such strain(s) whereupon LICENSEE shall contribute to [*] of the procurement costs of LICENSOR. In the event that LICENSOR is offered a license to improvements on Inventions (as defined in the Gamble Agreement) under paragraph 2.5 of the Gamble Agreement, LICENSOR shall notify LICENSEE forthwith and provide all information with respect thereto received by LICENSOR. If requested in writing by LICENSEE, LICENSOR shall exercise the option provided that LICENSEE pays the costs and expenses thereof. Any licensing rights obtained by LICENSOR as a result of the exercise of the option upon LICENSEE's request shall automatically be included in the license granted to LICENSEE hereunder. Any costs and expenses paid by LICENSEE in relation to the exercise of the option for licensing rights to improvements on Inventions shall be fully creditable against any royalties paid hereunder. 4. COMPULSORY LICENSES, BLOCKING PATENTS AND OTHER ROTAVIRUS ANTIGENS 4.01 In the event that a governmental agency in any country or territory grants or compels LICENSOR or LICENSEE to grant a license under PATENTS and/or KNOW-HOW to any THIRD PARTY for any vaccine(s) that compete(s) with VACCINE sold by LICENSEE, LICENSEE shall have the benefit in such country or territory of the terms granted to such THIRD PARTY to the extent that such terms as a whole are more favourable to the THIRD PARTY than those granted to LICENSEE under this Agreement. 4.02 The parties recognize that BLOCKING PATENTS may exist. If at any time during the term of this Agreement LICENSEE, in its sole discretion, deems it necessary to seek a license under any BLOCKING PATENT(S) from any THIRD PARTY in order to practice the rights and licenses granted by LICENSOR to LICENSEE hereunder in any particular country(ies), [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 10 CONFIDENTIAL TREATMENT 10. 4.03 In the event that Rotavirus antigens (other than Rotavirus antigens produced from strain 89.12 or derivatives thereof) are required to provide and/or to increase protection against any specific Rotavirus serotype, the royalties payable to LICENSOR pursuant to Paragraph 3.02 or pursuant to Paragraph 3.03, as appropriate, shall be reduced by [*]. 4.04 In no event shall the combined royalty reductions and deductions pursuant to Paragraphs 4.02 and 4.03 cause the level of royalties otherwise due to LICENSOR pursuant to Paragraph 3.02 or pursuant to Paragraph 3.03, as appropriate, to be reduced by [*] with respect to any VACCINE in any country for any calendar quarter. 5. DEVELOPMENT AND MILESTONES 5.01 Subject to the provisions of Paragraph 5.02 below, LICENSEE will, in accordance with LICENSEE's reasonable business and scientific judgement, exercise its reasonable efforts and diligence in developing VACCINE and in undertaking investigations and actions required to obtain appropriate governmental approvals to market VACCINE in at least the MAJOR MARKETS and in commercialising VACCINE in such MAJOR MARKETS. All such activity shall be undertaken at LICENSEE's expense. At LICENSEE's request and expense, LICENSOR shall supply LICENSEE with reasonable technical assistance in undertaking such investigations and actions. 5.02 The parties shall institute a development program with the objective of advancing VACCINE to commercial launch. The responsibilities of the parties shall be as follows: /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 11 CONFIDENTIAL TREATMENT 11. (a) FIRST PHASE LICENSOR has initiated a Phase II clinical trial to demonstrate proof of concept of VACCINE and shall complete such trial at LICENSOR's cost and expense. The parties shall agree on acceptable end points concerning immunogenicity, safety and efficacy for proof of concept which end points shall be attached hereto as Appendix C and the meeting of such end points shall establish proof of concept. In parallel with said Phase II trial, LICENSEE shall at its expense perform feasibility studies to produce VACCINE with a commercial cell line. The feasibility studies will have the purpose of (i) demonstrating that a commercially viable yield is obtainable from the chosen cell line(s), (as defined in Appendix D attached hereto) and (ii) subject to prior successful completion of (i), optimizing the manufacturing process, and, if necessary and feasible, producing GMP commercial products for use in a Phase III clinical study and in Phase II/III bridging studies. (b) MILESTONE - PHASE II/MANUFACTURING Contingent upon (i) LICENSOR establishing proof of concept under Paragraph 5.02 (a) and (ii) LICENSEE demonstrating that VACCINE can be produced in commercially viable yields under Paragraph 5.02 (a) LICENSEE shall pay LICENSOR a development milestone fee of [*] unless LICENSEE notifies LICENSOR in writing that LICENSEE has decided not to pursue the development of VACCINE within sixty (60) days after successful completion of first phase by both parties. If however LICENSOR is not able to demonstrate satisfactory proof of concept at the end of Phase II trial and/or LICENSEE cannot demonstrate in accordance with Paragraph 5.02 (a) within six (6) months after proof of concept in the Phase II trial that a commercially viable yield can be obtained, then the parties shall negotiate in good faith to determine whether further joint development is warranted and, if no agreement can be reached, this Agreement may be terminated at the option of LICENSEE if LICENSOR has /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 12 CONFIDENTIAL TREATMENT 12. been unable to demonstrate satisfactory proof of concept at the end of Phase II trial and at the option of LICENSOR if LICENSEE has been unable to demonstrate that a commercially viable yield can be obtained. (c) MILESTONE - PHASE III/TRIAL INITIATION Contingent upon satisfactory completion of the Phase II clinical and manufacturing milestone in accordance with Paragraph 5.02 (b), LICENSEE shall prepare a clinical development plan and discuss the suitability of such plan with the FDA and shall exert reasonable efforts to obtain FDA's approval of such plan under an IND within a reasonable timeframe to be agreed upon in good faith between the parties. If LICENSEE, after discussion with the FDA, is satisfied with the economics of such plan and decides to advance to pivotal Phase III, it shall at its expense conduct a pivotal Phase III clinical trial. LICENSOR shall be consulted in the design of such trial and shall participate in the running of the trial but LICENSEE shall exercise the ultimate control and management of the trial. Upon initiation of the Phase III clinical study under an IND the design of which has been discussed with and approved by the FDA, LICENSEE shall pay LICENSOR a second milestone fee of [*]. If LICENSEE, after discussion with the FDA, is not satisfied with the economics of such plan and decides to discontinue the VACCINE development, the second milestone fee shall not be due. However, should LICENSEE decide to conduct the Phase III clinical study with, and pursue the development of, VACCINE in a MAJOR MARKET of Europe rather than in the USA, the second milestone fee shall be reduced to [*]. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 13 CONFIDENTIAL TREATMENT 13. (d) MILESTONE - PHASE III/COMPLETION Provided that the pivotal Phase III study on completion provides satisfactory results that in LICENSEE's opinion can be used for submission of a registration file in a MAJOR MARKET, then LICENSEE shall pay LICENSOR a third milestone fee of [*]. In the event that the results of the Phase III study are not acceptable for registration purpose, such third milestone fee shall be payable only when a regulatory submission is first made in a MAJOR MARKET.[*] (e) REGISTRATION MILESTONE LICENSEE shall pay a milestone fee of [*] 5.03 LICENSEE shall report to LICENSOR on the status and progress of LICENSEE's efforts to develop and commercialise VACCINE at such times and in such manner as LICENSOR may reasonably request. 5.04 LICENSOR shall provide to LICENSEE, at LICENSEE's request and expense, technical assistance within its area of expertise concerning development, production and commercialisation of VACCINE. Provision of such technical assistance shall include, but not be limited to, visits by LICENSOR personnel to LICENSEE and visits by LICENSEE personnel to LICENSOR at times and for periods of time upon which the parties will agree. 5.05 In the event that LICENSEE's development of VACCINE is terminated at any time under the provisions of this Section 5 other than for failure by LICENSOR to establish satisfactory proof of concept, LICENSEE shall, to the extent that it is allowed and free to do so, grant LICENSOR a license under its manufacturing /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 14 14. technology specific for VACCINES in exchange for a reasonable compensation to be discussed and agreed upon in good faith by the parties. In the event LICENSEE, at its sole option, elects not to market VACCINE itself or through its AFFILIATES in any MAJOR MARKET(S), LICENSEE shall give LICENSOR a first option for the grant of marketing sub-licensing rights in any such MAJOR MARKET upon terms and conditions to be negotiated and agreed upon in good faith by the parties. In the event LICENSEE, at its sole option, elects not to market VACCINE itself or through its AFFILIATES and/or sublicensees in any MAJOR MARKET(S), the rights and licenses granted to LICENSEE under this Agreement shall be terminated with respect to any such MAJOR MARKET(S). 6. EXCHANGE OF INFORMATION AND CONFIDENTIALITY 6.01 During the term of this Agreement, LICENSOR shall promptly disclose to LICENSEE and/or supply LICENSEE with all KNOW-HOW. LICENSOR shall not be authorized to make any publication with respect to the KNOW-HOW nor disclose it to any THIRD PARTY provided that, LICENSOR shall, upon LICENSEE's prior consent in writing which consent shall not be unreasonably withheld, be authorized to publish the data from the Phase II clinical trial referred to in Paragraph 5.02 hereof and prior studies and, without consent, be authorized to disclose KNOW-HOW to its licensor as per the Gamble Agreement. 6.02 During the term of this Agreement, the parties shall promptly inform each other of any information that a party obtains or develops regarding the utility and safety of VACCINE and shall promptly report to the other party any confirmed information of serious or unexpected reactions or side effects related to the utilisation or medical administration of VACCINE. 6.03 During the term of this Agreement and for seven (7) years thereafter, irrespective of any termination earlier than the expiration of the term of this Agreement, LICENSOR and LICENSEE shall not reveal or disclose to THIRD PARTIES any confidential information received from the other party without first obtaining the written consent of the disclosing party, except as may be required for purposes of investigating, developing, manufacturing or marketing VACCINE 15 15. or for securing essential or desirable authorisations, privileges or rights from governmental agencies, or is required to be disclosed to a governmental agency, or is necessary to file or prosecute patent applications concerning VACCINE or to carry out any litigation concerning VACCINE provided that in each case the disclosing party exerts best efforts to maintain the confidentiality thereof under such circumstances and notifies the owner of the confidential information prior to any such disclosure. This confidentiality obligation shall not apply to such information which is or becomes a matter of public knowledge, or is already in the possession of the receiving party, or is disclosed to the receiving party by a THIRD PARTY having the right to do so, or is subsequently and independently developed by employees of the receiving party or AFFILIATES thereof who had no knowledge of the confidential information disclosed. The parties shall take reasonable measures to assure that no unauthorised use or disclosure is made by others to whom access to such information is granted. 6.04 Nothing herein shall be construed as preventing a party hereto from disclosing any information received from the other party to an AFFILIATE, sublicensee, distributor or to a THIRD PARTY as may be required for purposes of investigating, developing, manufacturing or marketing VACCINE, provided such AFFILIATE, sublicensee, distributor or THIRD PARTY has undertaken a similar obligation of confidentiality with respect to the disclosed confidential information. 6.05 All confidential information disclosed by one party to the other shall remain the intellectual property of the disclosing party. In the event that a court or other legal or administrative tribunal, directly or through an appointed master, trustee or receiver, assumes partial or complete control over the assets of a party to this Agreement based on the insolvency or bankruptcy of such party, the bankrupt or insolvent party shall promptly notify the court or other tribunal (i) that confidential information received from the other party under this Agreement remains the property of the other party and (ii) of the confidentiality obligations under this Agreement. In addition, the bankrupt or insolvent party shall, to the extent permitted by law, take all steps necessary or desirable to maintain the confidentiality of the other party's confidential information and to insure that the court, other tribunal or appointee maintains such information in confidence in accordance with the terms of this Agreement. 6.06 No public announcement or other disclosure to THIRD PARTIES concerning the existence of or the terms of or the subject matter covered by this Agreement 16 16. shall be made, either directly or indirectly, by any party to this Agreement, without first obtaining the approval of the other party and agreement upon the nature and text of such announcement or disclosure. The party desiring to make any such public announcement or other disclosure shall inform the other party of the proposed announcement or disclosure in reasonable sufficient time prior to public release, and shall provide the other party with a written copy thereof, in order to allow such other party to comment upon such announcement or disclosure. If such public announcement or other disclosure is required under securities laws or rules or pursuant to a public or private financing the concerned party needs not obtain the consent of the other party but shall provide the other party with a five (5) working days notice allowing the other party to review and comment upon such proposed disclosure and/or announcement and such other party shall cooperate fully with the concerned party with respect to all disclosures regarding this Agreement to the United States Securities Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either party included in any such disclosure. 6.07 Neither LICENSEE nor LICENSOR shall submit for written or oral publication any manuscript, abstract or the like which includes data or other information generated and provided by the other party without first obtaining the prior written consent of the other party, which consent shall not be unreasonably withheld. The contribution of each party shall be noted in all publications or presentations by acknowledgement or coauthorship, whichever is appropriate. 7. PATENT PROSECUTION AND LITIGATION 7.01 LICENSOR, or any entity having granted or granting rights to LICENSOR, shall be responsible for the filing, prosecution and maintenance of PATENTS which, subject to Paragraph 7.02, shall be at the cost and expense of LICENSOR (or the entity having granted or granting rights to LICENSOR). LICENSOR shall disclose to LICENSEE the complete texts of all patent applications within PATENTS as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceedings involving a PATENT anywhere in the TERRITORY. LICENSEE shall have the right to review all such pending applications and other proceedings and to make comments and/or recommendations to LICENSOR concerning them and their conduct and 17 17. LICENSOR shall consider, in good faith, all such LICENSEE's comments and/or recommendations. LICENSOR agrees to keep LICENSEE promptly and fully informed of the course of patent prosecution or other proceedings including by providing LICENSEE with copies of substantive communications, search reports and THIRD PARTY observations submitted to or received from patent offices throughout the TERRITORY. LICENSOR shall provide such patent consultation to LICENSEE at no cost to LICENSEE. LICENSEE shall hold all information disclosed to it under this section as confidential subject to the provisions of Paragraphs 6.03 and 6.04. 7.02 LICENSOR shall notify LICENSEE in sufficiently reasonable time in advance of any PATENT or subject matter or claim contained in PATENT which LICENSOR intends to abandon or otherwise cause or allow to be forfeited and LICENSEE shall have the right to assume responsibility for filing, prosecution and maintenance of any such PATENT or subject matter or claim contained in PATENT at LICENSEE's expense provided LICENSOR has the right to permit LICENSEE to assume such responsibility. 7.03 In the event of the institution of any suit by a THIRD PARTY against LICENSOR, LICENSEE or its AFFILIATES or sublicensees for patent infringement involving the manufacture, use, sale, distribution or marketing of VACCINE anywhere in the TERRITORY, the party sued shall promptly notify the other party in writing. Subject to Section 21 below, LICENSEE shall have the right but not the obligation to defend such suit at its own expense. LICENSOR and LICENSEE shall reasonably assist one another and cooperate in any such litigation at the other's request without expense to the requesting party. 7.04 In the event that LICENSOR or LICENSEE becomes aware of actual or threatened infringement of a PATENT anywhere in the TERRITORY, that party shall promptly notify the other party in writing. LICENSEE shall have the first right but not the obligation to bring, at its own expense, an infringement action against any THIRD PARTY and to use LICENSOR's name in connection therewith. If LICENSEE does not commence a particular infringement action within ninety (90) days, LICENSOR, after notifying LICENSEE in writing, shall be entitled, but not obligated, to bring such infringement action at its own expense. The party conducting such action shall have full control over its conduct, including settlement thereof provided that LICENSEE shall not take any steps, including settlement, which would have an adverse effect on PATENTS unless LICENSOR's consent is obtained. In any event, LICENSOR and LICENSEE 18 18. shall reasonably assist one another and cooperate in any such litigation at the other's request without expense to the requesting party. 7.05 LICENSOR and LICENSEE shall recover their respective actual out-of-pocket expenses, or equitable proportions thereof, associated with any litigation or settlement thereof, from any recovery made by any party. Any excess amount shall before the party which has conducted the litigation or settlement thereof. 7.06 The parties shall keep one another informed of the status of and of their respective activities regarding any litigation or settlement thereof concerning VACCINE. 7.07 LICENSOR shall authorise LICENSEE to act as LICENSOR's agent for the purpose of making any application for any extensions of the term of PATENTS, including SPC, and shall provide reasonable assistance therefor to LICENSEE, at LICENSEE's expense. (In the United States of America as permitted under Title 35 of the United States Code). 7.08 LICENSOR, on behalf of itself, its officers, agents and successors hereby waives any and all actions and causes of action, claims and demands whatsoever in law or equity of any kind against LICENSEE'S and its AFFILIATES' exercize of LICENSEE's rights under Paragraphs 7.02 and 7.07, and, subject to LICENSEE's obligations under Paragraph 7.04, against LICENSEE's and its AFFILIATES' exercize of LICENSEE's rights under Paragraph 7.04. 8. TRADEMARKS 8.01 LICENSEE, at its expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with VACCINE and COMBINATION and shall own and/or control such trademarks. Nothing in this Agreement shall be construed as a grant of rights, by license or otherwise, to LICENSOR to use such trademarks for any purpose. 19 19. 9. STATEMENTS AND REMITTANCES 9.01 LICENSEE shall keep and require its AFFILIATES and sublicensees to keep complete and accurate records of all sales of VACCINE and COMBINATION under the licenses granted herein. LICENSOR shall have the right, at LICENSOR's expense, through a certified public accountant or like person reasonably acceptable to LICENSEE, to examine such records during regular business hours during the life of this Agreement and for six (6) months after its termination; provided, however, that such examination shall not take place more often than once a year and shall not cover such records for more than the preceding two (2) years and provided further that such accountant shall report to LICENSOR only as to the accuracy of the royalty statements and payments. In the event that such inspection shall indicate in any calendar year that the royalties which should have been paid by LICENSEE are at least five percent (5%) greater than those which were actually paid by LICENSEE, then LICENSEE shall pay the cost of such inspection in addition to the underpaid royalties. 9.02 Within sixty (60) days after the close of each calendar quarter, LICENSEE shall deliver to LICENSOR a true accounting of all VACCINES and COMBINATION sold by LICENSEE, its AFFILIATES and its sublicensees during such quarter, and shall at the same time pay all royalties due. Such accounting shall show sales, NET SALES and deductions against royalties on NET SALES on a country-by-country and product-by-product basis. 9.03 Any tax paid or required to be withheld by LICENSEE on behalf of LICENSOR on account of royalties payable to LICENSOR under this Agreement shall be deducted from the amount of royalties otherwise due. LICENSEE shall secure and send to LICENSOR proof of any such taxes withheld and paid by LICENSEE or its sublicensees for the benefit of LICENSOR. 9.04 All royalties due under this Agreement shall be payable in United States Dollars. Monetary conversions from the currency of a foreign country in which VACCINE is sold into US currency shall be made at the exchange rate in force on the last business day of the period for which the royalties are being paid as published by Banque Generale de Belgique, Brussels, Belgium, or on another basis mutually agreed to by both parties in writing. 20 20. 10. TERM AND TERMINATION 10.01 Unless otherwise terminated, this Agreement shall expire upon the expiration, lapse or invalidation of the last remaining PATENT in the TERRITORY. Expiration of this Agreement under this provision shall not preclude LICENSEE from continuing to market VACCINE and to use KNOW-HOW without any further royalty or other payments to LICENSOR. 10.02 If either party fails or neglects to perform covenants or provisions of this Agreement and if the party in default has not corrected such default within sixty (60) days (the period shall be thirty (30) days for a payment default) after receiving written notice from the other party with respect to such default, such other party shall have the right to terminate this Agreement by giving written notice to the party in default provided the notice of termination is given within six (6) months of the default and prior to correction of the default. If the default other than a payment default is not curable in sixty (60) days and the defaulting party in good faith notifies the other party in writing prior to the sixty (60) days that it is initiating cure of the default and initiates cure of such default within the sixty (60) days and in good faith continues to attempt to cure the default, and in fact cures the default within one hundred and twenty (120) days, then this Agreement shall not be terminable hereunder. 10.03 LICENSEE may terminate this Agreement in its entirety or with respect to any country by giving LICENSOR at least three (3) months prior written notice thereof. 10.04 Either party may terminate this Agreement if, at any time, the other party shall file in any court or agency pursuant to any statute or regulation of (the United States or of) any (individual) state or (foreign) country, a petition in bankruptcy or insolvency or for reorganisation or for an arrangement or for the appointment of a receiver or trustee of the party or of its assets, or if the other party proposes a written agreement of composition or extension of its debts, or if the other party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed with sixty (60) days after the filing thereof, or if the other party shall propose or be a party to any dissolution or liquidation, or if the other party shall make an assignment for the benefit of creditors. 21 21. 10.05 Notwithstanding the bankruptcy of LICENSOR, or the impairment of performance by LICENSOR of its obligations under this Agreement as a result of bankruptcy or insolvency of LICENSOR, LICENSEE, if it has not then been notified for breach by LICENSOR, shall be entitled to retain the licenses granted herein, subject to LICENSOR's right to terminate this Agreement for reasons other than bankruptcy or insolvency as expressly provided in this Agreement. 10.06 LICENSEE shall be entitled to terminate this Agreement by written notice to LICENSOR in the event of change of control of LICENSOR, provided such notice is given within thirty (30) days after LICENSOR has notified LICENSEE of such change of control or after the date which LICENSOR can demonstrate is the date on which LICENSEE has been otherwise informed of such change of control. 11. RIGHTS AND DUTIES UPON TERMINATION 11.01 Upon termination of this Agreement, LICENSOR shall have the right to retain any sums already paid by LICENSEE hereunder, and LICENSEE shall pay all sums accrued hereunder which are then due. 11.02 Upon termination of this Agreement in its entirety or with respect to any country under Paragraph 10.02, 10.03 or 10.04, LICENSEE shall notify LICENSOR of the amount of VACCINE LICENSEE and its AFFILIATES, sublicensees and distributors then have on hand, the sale of which would, but for the termination, be subject to royalty, and LICENSEE and its AFFILIATES, sublicensees and distributors shall thereupon be permitted to sell that amount of VACCINE provided that LICENSEE shall pay the royalty thereon at the time herein provided for. 11.03 Termination of this Agreement shall terminate all outstanding obligations and liabilities between the parties arising from this Agreement except those described in Paragraphs 2.03, 6.03, 6.04, 6.05, 6.06, 6.07, 7.03, 7.06, 7.08, 8.01, 9.01, 9.02, 9.03, 9.04, 9.05, 11.01, 11.02, 11.03, 14.01, 15.01, 18.01, 20.01 and 21.01. 11.04 Upon termination of this Agreement by LICENSOR pursuant to Paragraph 10.02 for breach of LICENSEE, LICENSEE agrees not to use KNOW-HOW and/or 22 22. PATENTS for the research, development, making, using or selling of any product or process, including, but not limited to, VACCINES. 12. WARRANTIES AND REPRESENTATIONS 12.01 LICENSOR warrants that it has the right to grant the rights and licences under PATENTS and KNOW-HOW as provided throughout this Agreement including, but not limited to, the Rotavirus 89.12 strain and that it has the right to enter into this Agreement. 12.02 Nothing in this Agreement shall be construed as a warranty that PATENTS are valid or enforceable or that their exercise does not infringe any patent rights of THIRD PARTIES. Without having made an investigation or search, LICENSOR hereby warrants and represents that it has no present knowledge from which it can be inferred that PATENTS are invalid or that their exercise would infringe patent rights of THIRD PARTIES or that the Rotavirus 89.12 strain or the use thereof in VACCINE infringes any patent rights of THIRD PARTIES. Subject to other provisions contained herein, a holding of invalidity or unenforceability of any PATENT, from which no further appeal is or can be taken, shall not affect any obligation already accrued hereunder, but shall only eliminate royalties otherwise due under such PATENT from the date such holding becomes final. 12.03 LICENSOR acknowledges that, in entering into this Agreement, LICENSEE has relied upon technical and clinical information and KNOW-HOW disclosed and/or supplied by or on behalf of LICENSOR and that LICENSEE has relied upon LICENSOR's obligation to disclose and/or supply further information pursuant to Paragraph(s) 6.01 and/or 6.02 hereof. LICENSOR warrants and represents that LICENSOR has no knowledge that the technical and/or clinical information and/or KNOW-HOW disclosed and/or supplied to LICENSEE prior to the date of this Agreement is inaccurate in any material respect. LICENSOR warrants and represents that it will use its reasonable efforts to review the technical and/or clinical information and/or KNOW-HOW to be disclosed and/or supplied to LICENSEE under Paragraph(s) 6.01 and/or 6.02 hereof after the date of this Agreement for any inaccuracies therein and that, to the extent LICENSOR has any knowledge of any material inaccuracies in such technical and/or clinical information and/or KNOW-HOW, it shall inform LICENSEE of such inaccuracies. LICENSOR and LICENSEE warrant and represent to each other that they have not, up to the date of this Agreement, omitted to disclose and/or supply to each 23 23. other any information known to them concerning VACCINE or the transactions contemplated by this Agreement which would, to the best of their knowledge, be material to the other's decision to enter into this Agreement and to undertake the commitments and obligations set forth herein. 12.04 LICENSOR warrants and represents that it has no present knowledge of the existence of any pre-clinical or clinical data or information concerning VACCINE which suggests that there may exist toxicity, safety and/or efficacy concerns which may materially impair the utility and/or safety of VACCINE. 13. FORCE MAJEURE 13.01 If the performance of any part of this Agreement by either party, or of any obligation under this Agreement other than a payment provision, is prevented, restricted, interfered with or delayed by reason of any cause beyond the reasonable control of the party liable to perform, unless conclusive evidence to the contrary is provided, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party shall use its reasonable best efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed. When such circumstances arise, the parties shall discuss what, if any, modification of the terms of this Agreement may be required in order to arrive at an equitable solution. In the event agreement is not reached or the force majeure event cannot be cured within six (6) months, the other party shall have the right to terminate this Agreement by serving a written notice to the party affected by the force majeure event. 14. GOVERNING LAW 14.01 This Agreement shall be deemed to have been made in the United States of America and its form, execution, validity, construction and effect shall be determined in accordance with the laws of the Commonwealth of Massachusetts, USA, without regard to its choice of law principles. 24 24. 15. RESOLUTION OF DISPUTES 15.01 Prior to initiating legal action, the parties agree to attempt to settle any dispute by discussions between the parties, provided, however that this Paragraph 15.01 shall not prevent either party from seeking injunctive relief where necessary. If the parties have not resolved the dispute amicably, legal action may be introduced. 16. SEPARABILITY 16.01 In the event any portion of this Agreement shall be held illegal, void or ineffective, the remaining portions hereof shall remain in full force and effect. 16.02 If any of the terms or provisions of this Agreement are in conflict with any applicable statute or rule of law, then such terms or provisions shall be deemed inoperative to the extent that they may conflict therewith and shall be deemed to be modified to conform with such statute or rule of law. 16.03 In the event that the terms and conditions of this Agreement are materially altered as a result of Paragraphs 16.01 or 16.02, the parties will renegotiate the terms and conditions of this Agreement to resolve any inequities. 17. ENTIRE AGREEMENT 17.01 This Agreement, entered into as of the date first written above, constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes all previous writings and understandings. No terms or provisions of this Agreement shall be varied or modified by any prior or subsequent statement, conduct or act of either of the parties, except that the parties may amend this Agreement by written instruments specifically referring to and executed in the same manner as this Agreement. 25 25. 18. NO WAIVER 18.01 The failure of either party at any time to exercise any of their respective rights under this Agreement shall not be deemed a waiver thereof, nor shall such failure in any way prevent either party, as the case may be, from subsequently asserting or exercising such rights. 19. NOTICES 19.01 Any notice required or permitted under this Agreement shall be sent by certified mail, return receipt requested, postage pre-paid to the following addresses of the parties: if to LICENSOR: Virus Research Institute, Inc., 61 Moulton Street Cambridge, MA 02138, USA Attention: President cc: Elliot M. Olstein, Esq. Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein 6 Becker Farm Road Roseland, New Jersey 07068 USA if to LICENSEE: SmithKline Beecham P.L.C. New Horizons Court Brentford Middlesex TW8 9EP United Kingdom with a copy to : SmithKline Beecham Biologicals Manufacturing S.A. rue de l'Institut 89 26 26. 1330 Rixensart, Belgium Attention : Senior Vice President, General Manager 19.02 Any notice required or permitted to be given concerning this Agreement shall be effective upon receipt by the party to whom it is addressed. 20. ASSIGNMENT 20.01 Without prejudice to Paragraph 10.06, this Agreement and the licenses herein granted shall be binding upon and inure to the benefit of the successors in interest of the respective parties. Neither this Agreement nor any interest hereunder shall be assignable by either party without the written consent of the other provided, however, that LICENSEE may, without the consent of LICENSOR, assign this Agreement to any AFFILIATE or to any corporation with which it may merge or consolidate or to which it may sell all or substantially all of its assets, and that LICENSOR may without obtaining the consent of LICENSEE assign this Agreement to any corporation with which it may merge or consolidate or to which it may sell all or substantially all of its assets. 20.02 In the event of a permitted assignment hereunder the assignee must accept in writing the obligations of this Agreement, whereupon the assignor shall be relieved of its obligations under this Agreement. 21. INDEMNIFICATION 21.01(a) LICENSEE agrees to defend, indemnify and hold harmless LICENSOR, its AFFILIATES and any of their licensors that have granted a license under which LICENSEE has received a license under this Agreement as well as each of their respective directors, officers, employees, shareholders, and agents (hereinafter individually and collectively referred to as "Indemnitee") against any and all actions, claims (specifically including, but not limited to, any damages based on product liability claims), suits, losses, demands, judgments, and other liabilities (including attorneys' fees until LICENSEE assumes the defense as described below) asserted by THIRD PARTIES, government and non-government, resulting from or arising out of the manufacture, use or sale of VACCINES by LICENSEE, its AFFILIATES or sublicensees provided however that LICENSEE's indemnification to an 27 27. Indemnitee hereunder shall not apply to any liability, damage, loss or expense to the extent that it is directly or indirectly attributable to the gross negligence or intentional misconduct of such Indemnitee. If any such claims or actions are made, Indemnitee shall be defended at LICENSEE's sole expense by counsel selected by LICENSEE and reasonably acceptable to LICENSOR; provided that LICENSOR may, at its own non-refundable expense, also be represented by counsel of its own choosing. (b) Any such Indemnitee shall notify LICENSEE promptly of any claim or threatened claim under this Section 21, shall fully cooperate with all reasonable requests of LICENSEE with respect thereto, and shall give LICENSEE the right to control the defence and settlement of any such claim provided such Indemnitee shall be fully indemnified under this Section 21. (c) The provision of this Section 21 shall apply whether or not an act or claim is rightly brought or asserted. IN WITNESS WHEREOF, the parties, through their authorised officers, have executed this Agreement as of the date first written above. VIRUS RESEARCH INSTITUTE Inc. /s/ William A. Packer BY: WILLIAM A. PACKER TITLE: PRESIDENT SMITHKLINE BEECHAM P.L.C. /s/ Jean Stephenne BY: JEAN STEPHENNE TITLE: Senior Vice President, General Manager 28 CONFIDENTIAL TREATMENT APPENDIX A PATENT INFORMATION [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 29 CONFIDENTIAL TREATMENT APPENDIX B VRI PROPRIETARY INFORMATION AND KNOW-HOW, 89-12 ROTAVIRUS VACCINE 8 October 1997 [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 30 CONFIDENTIAL TREATMENT APPENDIX C PHASE II CLINICAL ENDPOINTS [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 31 APPENDIX D MANUFACTURING ENDPOINT - - Yield a minimum of 1 dose/ml - - This yield should be achieved in a cell line acceptable for commercial production and acceptable to regulatory authorities. 32 APPENDIX E EXCERPTS OF LICENSE AND CLINICAL TRIALS AGREEMENT DATED FEBRUARY 27, 1995 BETWEEN VIRUS RESEARCH INSTITUTE, INC AND JAMES N. GAMBLE INSTITUTE OF MEDICAL RESEARCH 2.4 (a) (b) (c) VRI agrees to forward to GAMBLE a copy of any and all fully executed sublicense agreements within thirty (30) days of execution thereof, and further agrees to forward to Gamble annually a copy of such reports received by VRI from its Sublicensee during the preceding twelve (12) month period under the sublicenses as shall be pertinent to a royalty accounting under said sublicense agreements. VRI may delete from copies of sublicense agreements provided to GAMBLE hereunder commercial, research and development, manufacturing, financial and other provisions unrelated to VRI's or the Sublicensee's obligations to Gamble. 8. INDEMNIFICATION AND INSURANCE. 8.1 VRI shall defend, indemnify and hold harmless GAMBLE and its trustees, officers, medical and professional staff, employees, and agents and their respective successors, heirs and assigns against all losses, damages, expenses, including attorney's fees and against any claims, suits, actions, demands or judgments brought against any one or more of them, arising out of any theory of product liability (including, but not limited to, action in the form of tort, warranty, or strict liability) or negligence concerning any product, process or service made, used or sold pursuant to any right or license granted under this AGREEMENT. VRI shall have the right to control the defense settlement and/or compromise of any such claims or actions. 8.2 VRl's obligations under Section 8.1 above shall not apply to any liability, damage, loss or expense to the extent that it is directly attributable to the negligence or intentional misconduct of GAMBLE or any of its trustees, officers, medical and professional staff, employees, agents or their respective successors, heirs or assigns. 8.3 VRI shall add, at VRl's expense, GAMBLE as an additional insured on VRI's clinical trial insurance policy, which provides limits of liability of $2,000,000 per incident and aggregate, effective upon the Effective Date of this AGREEMENT, to provide insurance coverage for GAMBLE for the clinical trials. 8.4 VRI, at VRl's expense, shall maintain policies of comprehensive general liability insurance and will obtain product liability insurance in amounts not less than $1,000,000 per incident and $2,000,000 annual aggregate and shall add GAMBLE as an additional insured on VRI's policy, which provides such limits of liability. Such insurance shall provide (i) product liability coverage, (ii) negligence, and (iii) broad form contractual liability coverage, for VRI's indemnification under Section 8.1 of this AGREEMENT. The minimum amounts of insurance coverage required under these provisions shall not be construed to create a limit of VRI's liability with respect to VRI's indemnification obligation under Section 8.1 of this AGREEMENT. VRI shall maintain such comprehensive general liability insurance and product liability insurance beyond the expiration or termination of this AGREEMENT and for a reasonable period after the termination of the clinical trials, which in no event shall be less than fifteen (15) years after the clinical trials. 8.5 This Section 8 shall survive expiration or termination of this AGREEMENT. 33 10. CONFIDENTIALITY 10.1 CONFIDENTIAL INFORMATION. As used in this AGREEMENT, "Confidential Information" means all information transmitted by a party hereto or obtained by a party hereto in connection with the performance of the clinical trials and other services described in Section 3 hereof or of any such other services to be provided by the parties as described herein, subject to the exceptions specified below. "Confidential Information" means information of any type, not generally known, about the business, processes, services, products, suppliers, customers, clients or plans of GAMBLE or VRI ("the parties hereto") of any client of the parties hereto (regardless of whether the parties hereto have executed a confidentiality agreement with such customer), which is used or useful in the conduct of business of the parties hereto, or which confers or tends to confer a competitive advantage over one who does not possess such information. Such information includes, but is not limited to, information relating to trade secrets, Technical Information, patent applications, know-how, research, development, design, engineering, quality control or service techniques, information about existing, new or envisioned products, processes or services and their development, performance, scientific, engineering or technical information, laboratory notebooks, notes, computer programs, source codes, object codes, software manuals, sketches, drawings, reports, formulae, gels, slides, sequences, biological materials living or otherwise, photographs, negatives, prototypes, models, correspondence, and other documents and things, and information relating to purchasing, sales, marketing, licensing, contracts with third parties, and pricing, whether or not in writing and whether or not labeled or identified as confidential or proprietary. Confidential Information may be disclosed in writing or orally or may be obtained by observation or inspection. All data, materials, information, and records developed by a party hereto in the course of performing this AGREEMENT shall be considered Confidential Information. However, Confidential Information shall not include information that a party hereto can demonstrate: (i) is in or enters the public domain through no fault of such party; (ii) is disclosed to a party hereto by a third party entitled to disclose it; (iii) was known to a party hereto before the date of this AGREEMENT; OR (iv) is required by law to be disclosed, provided reasonable advance notice of such requirement is given to a party hereto before such disclosure. 10.2 CONFIDENTIALITY. Without prior written consent, the parties hereto will not disclose the other party's Confidential Information to any third party other than employees, agents or others of the parties hereto who must necessarily be informed thereof, but only if and to the extent that any such person has a need for such information. A party hereto will only use Confidential Information for the purpose of fulfilling its obligations under this AGREEMENT. The parties hereto agree that they will take such reasonable steps as may be necessary to prevent the disclosure or use of any such materials by their officers, employees or agents except as provided herein, including but not limited to obtaining and enforcing appropriate confidentiality agreements with such persons. All obligations of confidentiality and nondisclosure set forth in this AGREEMENT shall survive the termination or expiration of this AGREEMENT. 10.3 The parties agree that clinical trial data generated by GAMBLE under the terms of the AGREEMENT will not be published by VRI prior to its publication by GAMBLE's principal investigators. To the extent not published, the results of the clinical trials will be held in confidence by GAMBLE. Subject to the foregoing, VRI will have the unrestricted right to use or disclose such clinical trial data. EX-10.26 3 LICENSE AGREEMENT (VRI & PM-O) 1 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. EXHIBIT 10.26 ------------------------------- LICENSE AGREEMENT ------------------------------- This Agreement is entered this 25th day of March, 1997 (the "EFFECTIVE DATE") into BY AND AMONG: VIRUS RESEARCH INSTITUTE, INC., a company organized and existing under the laws of the State of Delaware, having its principal place of business at 61 Moulton Street, Cambridge, Massachusetts, USA, (hereinafter referred to as "VRI") AND MERIEUX ORAVAX S.N.C., a societe en nom collectif organized and existing under the laws of the Republic of France, registered at the Registre du Commerce et des Societes in Lyon under N[degree symbol] RCS Lyon B 404 337 172, with a capital of 52.000.000 French Francs, whose registered head-office is located at 58, avenue Leclerc, 69007 Lyon, France, ORAVAX MERIEUX CO., a general partnership organized and existing under the laws of the State of Massachusetts, having its principal place of business at 38 Sidney Street, Cambridge, Massachusetts, USA, (the parties numbered and above are individually and collectively hereinafter referred to as "LICENSEE" or "HPC") WITNESSETH ---------- WHEREAS, VRI has developed certain confidential and/or proprietary information, patents and patent applications and material relating to the polymer called polyphosphazene ("PCPP") as an immunoadjuvant which may present an interest in connection with vaccination against, and immunotherapy of, Helicobacter pylori infections; WHEREAS, HPC are joint venture entities created and equally owned and controlled by OraVax, Inc. of Cambridge, Massachusetts, USA, ("ORAVAX") and Pasteur Merieux Serums & Vaccins S.A. -a Pasteur Merieux Connaught company- of Lyon, France ("PMC") for the purpose of researching, developing, manufacturing and distributing products for active immunization against Helicobacter pylori infections and prevention, treatment and cure of associated diseases and conditions in humans; WHEREAS, HPC wishes to acquire from VRI certain licenses in order to have the right to use PcPP in vaccines against Helicobacter pylori infections, and VRI is willing to grant such licenses to HPC, subject to the terms of and conditioned upon this Agreement; 1 2 NOW, THEREFORE, in consideration of the premises herein and for other good and valuable consideration, the Parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 - DEFINITIONS AND INTERPRETATION 1.1. DEFINITIONS : For the purposes of this Agreement the following words and phrases shall have the following meanings: (a) "AFFILIATE" means, with respect to any Person, (i) any other Person of which the securities or other ownership interests representing fifty per cent (50%) or more of the equity or fifty per cent (50%) or more of the ordinary voting power or fifty per cent (50%) or more of the general partnership interest are, at the time such determination is being made, owned, Controlled or held, directly or indirectly, by such Person (a "SUBSIDIARY"), or (ii) any other Person which, at the time such determination is being made, is Controlling, or under common Control with, such Person. As used herein, the term "Control", whether used as a noun or verb, refers to the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For the avoidance of doubt, it is hereby recorded that, notwithstanding the definition contained in this Section 1.1.(a), the two HPC entities are Affiliates of both OraVax and PMC and of each other, and that OraVax and PMC are each Affiliates of the two HPC entities. (b) "AGREEMENT" means this agreement, all amendments and supplements to this Agreement and all schedules to this Agreement, including the following: SCHEDULE A - LICENSED PATENTS, SCHEDULE B - List of HPC Antigens. APPENDIX A - Terms and conditions applicable to research contract. APPENDIX B - Terms and conditions applicable to COMPOUND supply. (c) "CALENDAR QUARTER" means any of the three-month periods beginning January 1, April 1, July 1 and October 1 in any year. (d) "COMPOUND" means a polymer that is a synthetic polyphosphazene derivative, including but not limited to the polyphosphazene known as Adjumer(TM); (e) "COMPOUND IMPROVEMENTS" means all patentable or non-patentable inventions, discoveries, technology and information of any type whatsoever, which add to the knowledge of the COMPOUND or its properties in general as a delivery system or an immunoadjuvant, as the case may be, for use in the Field of Use, including without limitation compositions, molecules derived from COMPOUND, methods, processes, technical information, knowledge, experience and know-how. (f) "CONFIDENTIAL INFORMATION" has the meaning ascribed to it in Section 8.1. of this Agreement. 2 3 (g) "EVENT OF FORCE MAJEURE" has the meaning ascribed to it in Article 12 of this Agreement. (h) "FIELD OF USE" means the use of VRI Technology for the formulation of products for active immunization against Helicobacter pylori infections in humans and, by such immunization, the prevention, treatment and cure of associated diseases and conditions. (i) "FIRST COMMERCIAL SALE" means, in each country of the Territory, the first sale of a PRODUCT in commercial quantities by LICENSEE, its Affiliates or Sublicensees, to Third-Parties, in each case for use or consumption of such PRODUCT in such country by the general public. (ii) "JOINT INVENTIONS" has the meaning ascribed to it in Section 9.1 hereof. (j) "LICENSE" has the meaning ascribed to it in Section 2.1.1. of this Agreement. (k) "LICENSED KNOW-HOW" means any and all technical information, discoveries, improvements, processes, formulae, data, engineering, technical and shop drawings, inventions, Materials, shop-rights, know-how and trade secrets, in each case which is Confidential Information at the time of disclosure according to Article 8, is identified in accordance with Section 2.3.3. of this Agreement as related to COMPOUND and which is useful or necessary to make, have made, use or sell PRODUCTS or to practice under the LICENSED PATENTS in the Field of Use, which have been, or hereafter are, either developed by VRI or its Affiliates, or the rights to which in the Field of Use have been acquired by VRI or its Affiliates and to which VRI or its Affiliates have a transferable interest. Without prejudice to the generality of the foregoing, LICENSED KNOW-HOW shall include, with respect to COMPOUND, chemical and analytical methods and data, COMPOUND specifications, and pharmacological and toxicological methods and data. (l) "LICENSED PATENTS" means: (i) any existing patents and patent applications listed in SCHEDULE A to this Agreement; (ii) any future patents issued from any patent applications referred to in Paragraph 1.1.(l).(i) above and any future patents issued from a patent application filed in any country in the Territory which corresponds to a patent or patent application identified in Paragraph 1.1.(l).(i) above; (iii) any reissues, confirmations, renewals, extensions, counterparts, divisions or continuations issued, assigned or licensed to VRI or its Affiliates of or relating to the patents or patent applications identified in Paragraph 1.1.(l).(i) and (ii) above; 3 4 (iv) any future patents and patent applications covering VRI COMPOUND Improvements SOLELY OR JOINTLY owned or licensed by VRI or its Affiliates with the right to sublicense. (m) "LICENSEE COMPOUND IMPROVEMENTS" means COMPOUND Improvements which are conceived, developed or reduced to practice during the term of this Agreement solely or jointly by employees or contractors acting on behalf of LICENSEE, its Affiliates or Sublicensees, to the extent and only to the extent that LICENSEE now has or hereafter shall have the right to grant licenses, immunities or other rights thereon. For avoidance of doubt, any technology developed by LICENSEE during the term and pursuant to this Agreement which relates to any HPC Antigen or Other Hp Antigen (rather than antigens in general), or to the combination of such specific antigen with COMPOUND, or to the manufacturing of PRODUCTS shall not be included in LICENSEE COMPOUND Improvements. LICENSEE COMPOUND Improvements shall be deemed to include LICENSEE's interest in any Joint Inventions. (mm) "LPS" means Helicobacter pylori antigens which are lipopolysaccharides. (n) "MANUFACTURING KNOW-HOW" means any and all technical information, discoveries, improvements, processes, formulae, data, engineering, technical and shop drawings, inventions, shop-rights, know-how and trade secrets, in each case which is Confidential Information at the time of disclosure in the meaning of Article 8 hereof, is identified in accordance with Section 2.3.3., which is owned or otherwise possessed by VRI or VRI's Affiliates and to which VRI or its Affiliates have a transferable interest, and which is useful or necessary to make and have made COMPOUND or to use COMPOUND for the formulation of PRODUCTS or to practice under the LICENSED PATENTS to the extent such Patents relates to the manufacturing of COMPOUND; in particular, but without limiting the generality of the foregoing, Manufacturing Know-How shall include any and all information regarding the synthesis, manufacture, up-scaling and handling of COMPOUND, any and all analytical procedures, procedures for and specifications of quality-assurance and quality-control. (o) "MATERIALS" shall mean any biological materials and chemical compound including but not limited to structural genes, genetic sequences, promoters, enhancers, probes, linkage probes, vectors, hosts, plasmids, peptides, polypeptides, transformed cell lines, transgenic animals, proteins, biological modifiers, antigens, reagents, hybridomas, antibodies, toxins, lectins, enzymes, lipids, hormones, viruses, cells or parts of cells, cell lines, fragments of any of the foregoing and any other biologically active material or compound, whether or not occurring naturally or howsoever derived, modified, conjugated, cross-linked, immobilized, reduced, purified or produced, whether by recombinant DNA techniques and/or otherwise. (p) "NET SALES" shall mean gross sales of PRODUCTS sold by LICENSEE, its Affiliates and Sublicensees to Third-Parties (including unaffiliated Third-Party distributors, except in the circumstances referred to in Section 6.3 hereof, and provided further that where a distributor is an Affiliate, but neither a 4 5 Subsidiary of LICENSEE nor a Subsidiary of OraVax or PMC (other than HPC), such distributor shall be deemed a Third-Party for the purpose of calculating Net Sales hereunder) less, to the extent actually incurred or allowed: (i) customary trade discounts, credits, rebates, returns (including, but not limited to, wholesaler and retailer returns); (ii) excise taxes, other consumption taxes, customs duties and compulsory payments made to governmental authorities; (iii) transportation, transit and insurance for transportation each to the extent separately invoiced and paid by LICENSEE. (q) "NOTICE OF DISPUTE" has the meaning ascribed to it in Section 17.4.(a) of this Agreement. (r) "OTHER HP ANTIGENS" means any antigens of Helicobacter pylori and genes encoding such antigens other than HPC Antigens and LPS. (s) "PARTIES" means LICENSEE and VRI, and "Party" means any one of them. (t) "PERSON" means an individual, corporation, partnership, trust, business trust, association, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. (u) "PHASE III" means the first large scale safety and efficacy clinical trial relating to a PRODUCT. (v) "PLA" means a product license application filed with the European Medicines Evaluation Agency or its successor in the European Union, or any analogous or corresponding application filed with the governing health authority of any country or region (such as the Food and Drug Administration in the United States of America or the Agence du Medicament in France), for approval to market any PRODUCT for use or consumption in such country or region. (vv) "HPC ANTIGENS" means antigens of Helicobacter pylori (other than LPS), and genes encoding such antigens, which are listed in SCHEDULE B as being included in LICENSEE's research & development program, which list may be amended from time to time by written notice by LICENSEE to VRI (i) to add antigens which are included in LICENSEE's research & development program, in which case such antigens shall then become HPC Antigens and be treated as such for the purpose of this Agreement, PROVIDED, HOWEVER, that VRI has not previously granted a non-exclusive license to a Third-Party with respect to the use of COMPOUND in combination with such antigens, or (ii) to delete antigens which are excluded from such program, in which case such antigens shall become Other Hp Antigens and be treated as such for the purpose of this Agreement; (w) "PRODUCTS" means any and all vaccines for active immunization intended for use in the Field of Use which contain HPC Antigens (either alone, 5 6 combined with each other or combined with Other Hp Antigens) or Other Hp Antigens (either alone or combined with each other), in each case formulated in combination with COMPOUND. (ww) "RESEARCH INVENTIONS" has the meaning ascribed to it in Section 9.1 hereof which refers to Section 9 of APPENDIX A to this Agreement. (x) "ROYALTY TERM" means, with respect to each PRODUCT in each country in the Territory, the period of time equal to the longer of (a) ten (10) years from the date of First Commercial Sale of such PRODUCT in such country or (b) the term for which a Valid Patent Claim in such country remains in effect and, but for a license granted by this Agreement, would be infringed by the manufacture, use or sale of such PRODUCT in the Field of Use in such country. (xx) "SUBLICENSEE" means any Person acting pursuant to a sublicense granted to it by LICENSEE under the terms of this Agreement. (xxx) "TERRITORY" means all countries in the world. (y) "THIRD-PARTY" means any Person other than LICENSEE, VRI and their respective Affiliates. (yy) "VALID PATENT CLAIM" means a claim of an issued and unexpired patent or patent application included in LICENSED PATENTS which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. (z) "VRI COMPOUND IMPROVEMENTS" means COMPOUND Improvements which are conceived, developed or reduced to practice during the term of this Agreement solely or jointly by employees or contractors acting on behalf of VRI or its Affiliates, to the extent that VRI has now or hereafter shall have the right to grant licenses, immunities or other rights thereon. VRI COMPOUND Improvements shall be deemed to include VRI's interest in any Joint Inventions. (zz) "VRI TECHNOLOGY" means the LICENSED PATENTS, the COMPOUND, the Manufacturing Know-How, the LICENSED KNOW-HOW and the VRI COMPOUND Improvements. ARTICLE 2 - LICENSES 2.1. GRANT OF LICENSES TO LICENSEE 2.1.1. GRANT: Subject to and conditioned upon the provisions of this Agreement, VRI hereby grants to LICENSEE, and LICENSEE hereby accepts, the following licenses (collectively, the "LICENSE"): 6 7 (i) a license in the Territory to make, have made, use and sell PRODUCTS under the LICENSED PATENTS and by using LICENSED KNOW-HOW and VRI COMPOUND Improvements; and (ii) a license in the Territory to make, have made and use the COMPOUND under the LICENSED PATENTS, and by using the Manufacturing Know-How and VRI COMPOUND Improvements, in each case solely for the purpose of formulating PRODUCTS in the Field of Use. 2.1.2. EXCLUSIVITY (i) HPC ANTIGENS. Subject to and conditioned upon the provisions of this Agreement, the LICENSE granted pursuant to this Article II shall be exclusive (exclusive even as to VRI) to LICENSEE in the Field of Use with respect to PRODUCTS combining any COMPOUND with any HPC Antigens (either alone, combined with each other or combined with Other Hp Antigens). Without limiting the generality of the foregoing, VRI covenants that during the term of this Agreement, neither VRI nor its Affiliates shall grant to any other Person any right , license or privilege to make, have made, use or sell PRODUCTS containing HPC Antigens (alone, or in combination with each other, or in combination with Other Hp Antigens), or to make, have made or use COMPOUND, or to otherwise use or exploit VRI Technology, in connection with such PRODUCTS containing HPC Antigens (alone, or in combination with each other, or in combination with Other Hp Antigens). (ii) OTHER HP ANTIGENS. Subject to and conditioned upon the provisions of this Agreement, the LICENSE granted pursuant to this Article II shall be non-exclusive to LICENSEE in the Field of Use with respect to PRODUCTS combining any COMPOUND with any Other Hp Antigens (alone or combined with each other), but only with such Other Hp Antigens. Such license shall be non-transferable and non-sub-licensable. (iii) For greater certainty, VRI has and retains all rights in and to the VRI Technology outside the Field of Use and LICENSEE has no rights in the VRI Technology outside the Field of Use. Further, the LICENSE shall not apply to nor cover any combination of an Helicobacter pylori vaccine with any other vaccine, or any Helicobacter pylori vaccine containing LPS. 2.1.3. LICENSEE'S RIGHTS TO SUBLICENSE (i) LICENSEE shall have the right, with VRI's prior written consent (which consent shall not be unreasonably withheld), to sublicense in the Field of Use to Third-Parties all or any portion of the rights to LICENSED PATENTS and LICENSED KNOW-HOW and VRI COMPOUND Improvements granted to it pursuant to this Agreement under the exclusive LICENSE. (ii) LICENSEE shall have the right, without obtaining the further consent of VRI, to sublicense in the Field of Use all or any portion of the rights to the LICENSED PATENTS, the LICENSED KNOW-HOW, VRI COMPOUND Improvements and/or the Manufacturing Know-How granted to it pursuant to this Agreement under both the exclusive and the non-exclusive LICENSE (i) to any or all of its Affiliates, and (ii) to any Person in any country of the 7 8 Territory if required to do so by any governmental authority having jurisdiction in such country. (iii) LICENSEE agrees that all sublicenses granted by LICENSEE hereunder shall expressly bind Sublicensees to the terms of Article 8, "Confidentiality" and to all other relevant provisions of this Agreement. In the event LICENSEE grants sublicenses, LICENSEE shall pay royalties to VRI as if Net Sales of the Sublicensees were Net Sales of LICENSEE and VRI shall be expressly made a third-party beneficiary thereof. LICENSEE shall be responsible for the performance by any Sub-licensee of all such terms, conditions and obligations. (iv) Any sublicenses granted by LICENSEE shall include a requirement that the Sublicensee maintains records and permits inspection on terms essentially identical to Section 5.2 hereof. At VRI's request, LICENSEE shall arrange for an independent certified public accountant selected by VRI to inspect the records of Sublicensees, at VRI's expense, for the purpose of verifying royalties due to VRI and shall cause such accountant to report the results thereof to VRI. (v) Any sublicenses granted by LICENSEE shall provide for the termination of the sublicense, or, if the Sublicensee is a Third-Party, at the option of such Sublicensee, the conversion to a license directly between such Sublicensee and VRI, upon termination of this Agreement under Article 10 (other than expiration under Section 10.1). Such conversion shall be subject to VRI's approval and contingent upon acceptance by the Sublicensee of the remaining provisions of this Agreement. (vi) LICENSEE shall notify VRI of each sublicense granted to Third-Parties and shall provide VRI with the name and address of each Sublicensee and a description of the PRODUCTS and territory covered by each sublicenses. 2.1.4. SUBLICENSES TO LICENSEE. To the extent LICENSED PATENTS have been, or shall be, licensed by VRI from a Third-Party under an agreement with such Third-Party (a "Third-Party In-license"), HPC understands and agrees as follows: (i)- The rights sub-licensed to HPC by VRI are subject to the terms and conditions, restrictions, limitations and obligations of the relevant Third-Party In-license; (ii)- HPC shall comply with the terms and conditions, restrictions, limitations and obligations of such Third-Party In-license(s) to the extent HPC has been permitted to review such terms, conditions, restrictions, limitations and obligations. VRI shall give HPC, upon request, a reasonable opportunity to review the same except to the extent that confidentiality obligations towards Third-Parties may prevent VRI from doing so. In any event, VRI shall act reasonably in advising HPC of the scope of HPC's obligations pursuant to any relevant Third-Party In-license. 2.1.5 SUBCONTRACTING. Notwithstanding anything herein provided for to the contrary, LICENSEE shall be allowed to (i) sub-contract in whole or in part PRODUCTS development to Third-Parties such as, without limitation, clinical research organizations, (ii) appoint sales agents and distributors to promote, market and distribute PRODUCTS and (iii) sub- 8 9 contract manufacturing of PRODUCTS and/or COMPOUND with Affiliates, Third-Parties or with VRI, or VRI's Affiliates. 2.2. LICENSES TO VRI. Subject to and conditional upon the provisions of this Agreement, LICENSEE shall grant to VRI a non-exclusive, sublicenseable, royalty-free, worldwide license to LICENSEE COMPOUND Improvements for commercial use outside the Field of Use. 2.3. PROCEDURES FOR PROVISION OF KNOW-HOW. 2.3.1. DISCLOSURE OF TECHNOLOGY. (a) BY VRI. From time to time during the term of this Agreement, VRI shall disclose or cause its Affiliates to disclose to LICENSEE such VRI Technology as reasonably necessary to enable LICENSEE to develop, manufacture and commercialize PRODUCTS and to manufacture, have manufactured or use COMPOUND for the formulation of PRODUCTS in the Field of Use on the terms and subject to the conditions of this Agreement. In addition, during the term of this Agreement, VRI shall, upon LICENSEE's reasonable request and with adequate notice to VRI, make available to LICENSEE at LICENSEE's or its Affiliates' manufacturing facilities or the facility of a Third-Party manufacturer who shall have contracted with LICENSEE to manufacture PRODUCTS or COMPOUND, VRI's or VRI Affiliate's personnel to provide technical assistance to LICENSEE's personnel, or LICENSEE Affiliates' personnel or Third-Party manufacturer's personnel. LICENSEE shall pay or have paid by its concerned Affiliates all expenses incurred by VRI or its Affiliates in connection with such technical assistance. The technical assistance to be rendered by VRI and its Affiliates hereunder may include, upon reasonable request by LICENSEE, demonstration of Manufacturing Know-How at a VRI's or a VRI Affiliate's facility and disclosure of any and all sources of raw material and list and specifications of equipment and machinery used in the production of COMPOUND according to the Manufacturing Know-How. (b) BY LICENSEE. From time to time during the term of this Agreement, LICENSEE shall disclose to VRI all LICENSEE COMPOUND Improvements on the terms and subject to the conditions of the Agreement and in particular in accordance with Section 2.2. hereof. 2.3.2. COMMUNICATION AMONG PARTIES. Each of LICENSEE and VRI shall appoint (a) specific individual(s) who shall be available and shall act as (a) liaison person(s) to facilitate the day-to-day 9 10 communications among the Parties. The names and addresses of the liaison persons who shall act on behalf of each of the Parties shall be provided by each of the Parties to the other immediately following the execution of this Agreement. Each of LICENSEE and VRI agrees to notify the other in accordance with the terms of Section 17.1. of this Agreement in the event of a change in liaison person. 2.3.3. IDENTIFICATION OF KNOW-HOW. The Parties agree that all information, COMPOUNDS and Materials comprised in the Licensed Know-How to be transferred to LICENSEE pursuant to this Agreement shall be so transferred in the case of written information, by memoranda bearing the mention "Confidential", and, in the case of Materials, by clearly marked and numbered containers. LICENSEE shall designate an individual who shall be responsible for receiving information and Materials from VRI and/or its Affiliates and the Parties agree that such information and Materials shall in all cases (except where the Parties agree otherwise) be sent solely to the attention of such individual. Upon receipt of information and/or Materials, the designated individual shall, on behalf of LICENSEE, send an acknowledgement to VRI and/or its Affiliates confirming receipt of information and/or Materials. The Parties agree that they shall in good faith work together to establish and maintain a system to record the transmission of information and/or Materials under this Agreement and make all commercially reasonable efforts to ensure such system is followed. 2.3.4. CONFIDENTIALITY. All information transferred pursuant to this Agreement shall be deemed to be "Confidential Information" in accordance with Section 8.1. 2.3.5. SUPPLY OF COMPOUND. VRI hereby represents and warrants that any and all quantities of COMPOUND which may be supplied hereunder by VRI or its Affiliates to LICENSEE for use in clinical trials in humans shall be manufactured in accordance with current Good Manufacturing Practices (cGMP) as in force in the country where such COMPOUND shall be manufactured and shall meet COMPOUND specifications as shall be agreed otherwise by the Parties. The sole and exclusive remedy for LICENSEE under this paragraph shall be for VRI to provide replacement COMPOUND complying with agreed-upon specifications, free of any charge, in quantity equal to LICENSEE's original order, except where VRI liability is established to be gross negligence or willful misconduct (and LICENSEE did not use COMPOUND with knowledge of the non-compliance hereunder), in which case VRI shall indemnify LICENSEE as provided herein. 10 11 ARTICLE 3 - DEVELOPMENT AND COMMERCIALIZATION. 3.1. DEVELOPMENT AND COMMERCIALIZATION EFFORTS. LICENSEE (i) shall use commercially reasonable efforts to diligently conduct such preclinical and clinical trials that are necessary or desirable to obtain all regulatory approvals to develop and commercialize such PRODUCTS, (ii) shall diligently develop and obtain necessary approval to market such PRODUCTS (including, as the case may be, pricing approval), and (iii) shall commence marketing and market such PRODUCTS in each country in which LICENSEE has received all applicable regulatory approvals therefor. LICENSEE shall comply with all applicable good laboratory, clinical and manufacturing practices in the development and commercialization of such PRODUCTS, and shall cause its Affiliates and subcontractors to do the same. LICENSEE shall be solely responsible for funding all costs of the development and commercialization of each such PRODUCTS. 3.2. SUB-CONTRACTS TO VRI. LICENSEE and VRI may agree to have part of the research and development work with respect to PRODUCTS sub-contracted to VRI, in which case such research contract shall be subject to the terms and conditions set forth in APPENDIX A. LICENSEE and VRI may agree to have COMPOUND manufacturing sub-contracted to VRI, in which case such contract manufacturing shall be subject to terms and conditions set forth in APPENDIX B. 3.3. DEVELOPMENT AND COMMERCIALIZATION REPORTS. During the term of this Agreement, LICENSEE shall keep VRI reasonably informed as to the progress of the development of PRODUCTS by notifying VRI of completion of each significant step. In addition, LICENSEE agrees to update the list of HPC Antigens which constitute the SCHEDULE B to this Agreement, on a quarterly basis, by indicating in writing which Other Hp Antigens, if any, are included in such list and which HPC Antigens, if any, are excluded therefrom and then become Other Hp Antigens. All information disclosed by LICENSEE pursuant to this Section 3.3 shall be subject to Article 8 hereof. ARTICLE 4 - ROYALTIES AND MILESTONES. 11 12 CONFIDENTIAL TREATMENT 4.1. EARNED ROYALTIES. During the Royalty Term, LICENSEE shall pay to VRI a royalty of [*] 4.2. THIRD-PARTY ROYALTIES. If LICENSEE, its Affiliates or Sublicensees is required to pay royalties to any Third-Party in order to make, have made, use or sell a PRODUCT in a country or to make, have made or use COMPOUND for use in such PRODUCT in such country, then the royalty set-forth in Section 4.1 hereof for such PRODUCT in such country shall be reduced by [*]. 4.3. SINGLE ROYALTY: NON-ROYALTY SALES. In no event shall more than one royalty be payable under Section 4.1. hereof with respect to a particular unit of PRODUCTS. No royalty shall be payable under this Article 4 with respect to sales of PRODUCTS among LICENSEE and its Affiliates (provided that where a distributor is an Affiliate, but neither a Subsidiary of LICENSEE nor a Subsidiary of OraVax or PMC -other than HPC-, such distributor shall be deemed a Third-Party), or among Sublicensees and their Affiliates, or among LICENSEE and its Affiliates, but a royalty shall be due upon the subsequent sale of the PRODUCTS to a Third-Party. No royalty shall be payable for (i) PRODUCTS used by LICENSEE, its Affiliates or Sublicensees, for research including, without limitation, in clinical trials, or (ii) customary quantities of PRODUCTS distributed as free samples. 4.4. MILESTONE PAYMENTS. As additional consideration for the LICENSE, rights and privileges granted to it hereunder, LICENSEE shall pay to VRI the following milestone payments within thirty (30) days of the occurrence of each event set forth below (unless otherwise specified below), whether such events are achieved by LICENSEE, its Affiliates or Sublicensees: (a) [*] (b) [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 12 13 CONFIDENTIAL TREATMENT (c) [*] (d) [*] (e) [*] (f) [*] The above-mentioned milestone payments shall be payable only once each. ARTICLE 5 - ROYALTY REPORTS AND ACCOUNTING. 5.1. REPORTS, EXCHANGE RATES. During the term of this Agreement following the First Commercial Sale, LICENSEE shall furnish to VRI, with respect to each Calendar Quarter, a written report showing in reasonably specific detail, on a country-by-country basis, (a) the gross sales of PRODUCTS sold by LICENSEE, its Subsidiaries and its Sublicensees in the Territory during the corresponding Calendar Quarter and the calculation of Net Sales from such gross sales; (b) the royalties payable in United States dollars, if any, which shall have accrued hereunder based upon Net Sales of PRODUCTS; (c) the withholding taxes, if any, required by law to be deducted in respect of such royalties; (d) the date of the First Commercial Sale of PRODUCTS having occurred in each country in the Territory during the corresponding Calendar Quarter; and (e) the exchange rates used in determining the royalty amount expressed in United States dollars. With respect to sales (if any) of PRODUCTS invoiced in United States dollars, the gross sales, Net Sales, and royalties payable shall be expressed in United Sates dollars. With respect to sales of PRODUCTS invoiced in a currency other than United Sates dollars, the gross sales, Net Sales and royalties payable shall be expressed in the currency of the invoice issued by the Party making the sale together with the United States dollars equivalent of the royalty payable, calculated using the rate of exchange published in the WALL STREET JOURNAL for such currency on the last business day of the concerned Calendar Quarter. Reports and payments shall be due on the forty fifth (45th) day following the close of each Calendar Quarter. LICENSEE shall keep complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined. 5.2. AUDITS. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 13 14 5.2.1. Upon the written request of VRI and not more than once in each calendar year, LICENSEE shall permit an independent certified public accounting firm of internationally recognized standing, selected by VRI and reasonably acceptable to LICENSEE, at VRI's expense, to have access during normal business hours to such of the records of LICENSEE as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than three (3) years prior to the date of such request. The accounting firm shall disclose to VRI only whether the records are correct or not and the specific details concerning any discrepancies. No other information shall be shared. 5.2.2. If such accounting firm concludes that additional royalties were owed during such period, LICENSEE shall pay the additional royalties within thirty (30) days of the date VRI delivers to LICENSEE such accounting firm's written report so concluding. The fees charged by such accounting firm shall be paid by VRI ; PROVIDED, HOWEVER, if the audit discloses that the royalties payable by LICENSEE for the audited period are more than one hundred and two percent (102%) of the royalties actually paid for such period, then LICENSEE shall pay the reasonable fees and expenses charged by such accounting firm. 5.2.3. LICENSEE shall include in each permitted sublicense granted by it pursuant to the Agreement a provision requiring the Sublicensee to make reports to LICENSEE, to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by VRI's independent accountant to the same extent required with respect to LICENSEE's records under this Agreement. 5.2.4. Except in the case of circumstances which would have prevented an error or anomaly from being disclosed during the audit hereabove mentioned, such as fraud or other failure to provide accurate information, upon the expiration of three (3) years following the end of any calendar year, the calculation of royalties payable with respect to such year shall be binding and conclusive upon VRI, and LICENSEE, its Affiliates and Sublicensees shall be released from any liability or accountability with respect to royalties for such year. 5.3. CONFIDENTIAL FINANCIAL INFORMATION. VRI shall treat all financial information subject to review under this Article 5 or under any sublicense as confidential, and shall cause its accounting firm to retain all such financial information in confidence. ARTICLE 6 - PAYMENTS. 6.1. PAYMENT TERMS. Royalties shown to have accrued by each royalty report provided for under Article 5 of this Agreement shall be due on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date. 14 15 CONFIDENTIAL TREATMENT 6.2. PAYMENT METHOD. Except as provided in this Section 6.2., all payments by LICENSEE to VRI under this Agreement shall be paid in United States dollars, and all such payments shall be made without deduction of bank transfer fees by bank wire transfer in immediately available funds to the following bank account : ------------------------------------------------------- Bank : [*] Account N[degree symbol]: [*] Account name: [*] ------------------------------------------------------- or to any other bank account designated in writing from time to time by VRI to LICENSEE. 6.3. EXCHANGE CONTROL. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country in the Territory where PRODUCTS are sold, payment shall be made through such lawful means or method as the Parties reasonably shall determine or, at VRI's discretion, royalties shall be based on HPC sales (if any) to HPC's Subsidiary or Sublicensee in such country. 6.4. WITHHOLDING TAXES. Royalties and milestone payments shall be paid by LICENSEE to VRI, after deduction of any applicable withholding taxes. Prior to any payment by LICENSEE to VRI, LICENSEE shall provide to VRI any forms required to attest VRI's fiscal domiciliation in order to allow LICENSEE to claim application of the reduced rate of withholding tax provided for in any applicable bilateral fiscal convention. VRI shall promptly return such forms to LICENSEE. In the event VRI fails to promptly return such forms duly filled and signed, LICENSEE shall declare and pay withholding tax at the common law rate of the applicable corporate income tax, and such tax shall then be deducted from the corresponding payment by LICENSEE to VRI. LICENSEE shall pay withholding tax to the proper taxing authority and proof of payment of such tax shall be secured and sent to VRI as evidence of such payment. ARTICLE 7 - INFRINGEMENT ACTIONS BY THIRD-PARTIES. If LICENSEE, VRI or their respective Affiliates, or LICENSEE's Sublicensees, is sued by a Third-Party for infringement of a Third-Party's patent because of the manufacture, use or sale of PRODUCTS or manufacture or use of COMPOUND, the Party which has been sued shall promptly notify the other Party in writing of the institution of such suit, in which event the other Party shall have the right to be represented by advisory counsel of its own selection, at its own expense, and shall cooperate fully in the defense of such suit and furnish to the Party(ies) that is (are) sued all evidences and assistance in its control. The Party controlling the suit may not settle the suit or otherwise consent to an adverse judgment in such suit that diminishes the rights or interests of the non-controlling Party without the express written consent of the non-controlling Party. Any judgments, awards, /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 15 16 settlements or damages payable with respect to legal proceedings covered by this Article 7 shall be paid by the Party against whom the award has been made. ARTICLE 8 - CONFIDENTIALITY. 8.1. NON-DISCLOSURE AND RESTRICTION-OF-USE OBLIGATIONS. Except as otherwise provided in this Article 8, during the term of this Agreement and for a period of ten (10) years after termination of this Agreement under Sections 10.3. or 10.4., each Party shall maintain in confidence, and use only for purposes as expressly authorized and contemplated by this Agreement, all information and data supplied by the other Party under this Agreement, including but not limited to LICENSED KNOW-HOW, Manufacturing Know-How and COMPOUND Improvements. For purposes of this Article 8, information and data described above shall be hereinafter referred to as "CONFIDENTIAL INFORMATION". 8.2. PERMITTED DISCLOSURES. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, (i) a Party may disclose Confidential Information it is otherwise obligated under this Article 8 not to disclose, to its Affiliates, Sublicensees, consultants, outside contractors and clinical investigators, on a need-to-know basis, provided that such Persons agree to keep the Confidential Information confidential and not use the Information for the same time period and to the same extent as such Party is required; and (ii) a Party may disclose such Confidential Information to governmental or other regulatory authorities to the extent that such disclosure is required by applicable law, regulation or court order, or is reasonably necessary to obtain patents, copyrights or authorizations to conduct clinical trials with, or to commercially market PRODUCTS, provided that the disclosing Party shall provide written notice to the other Party and sufficient opportunity to object to such disclosure or to request confidential treatment thereof. The obligation not to disclose or use Confidential Information shall not apply to any part of such Information (including LICENSED KNOW-HOW, Manufacturing Know-How and COMPOUND Improvements) that (i) is or becomes patented, published or otherwise part of the public domain or publicly available other than by acts of the Party obligated not to disclose such Information, or of its Affiliates or Sublicensees, in contravention of this Agreement; (ii) is disclosed to the receiving Party or its Affiliates or Sublicensees by a Third Party, provided such Information was not obtained by such Third-Party directly or indirectly from the other Party, its Affiliates or Sublicensees, under or pursuant to this Agrement on a confidential basis and otherwise had a lawful right to disclose the information; (iii) prior to disclosure under the Agreement, was already in the possession of the receiving Party or its Affiliates or Sublicensees, provided such Information was not obtained directly or indirectly from the other Party under this Agreement; (iv) is independently developed by the receiving Party without reliance on the Confidential Information disclosed by the other Party hereunder, (v) is disclosed in a press release agreed to by both Parties hereto in accordance with Section 8.4. hereinafter or (vi) both Parties have agreed to publish. 16 17 8.3. TERMS OF THE AGREEMENT. LICENSEE and VRI shall not disclose any terms or conditions of this Agreement to any Third-Party without the prior consent of the other Party, except (a) to Persons with whom LICENSEE or VRI has entered into or proposes to enter into a business relationship to which this Agreement is relevant and substantial, provided that such Persons shall enter into the required confidentiality agreement, or (b) as required by applicable laws, regulations or a court order, provided that the disclosing Party shall provide written notice to the other Party and sufficient opportunity to object to such disclosure or to request confidential treatment thereof. 8.4. PRESS RELEASES AND OTHER DISCLOSURES TO THIRD-PARTIES Neither VRI nor HPC shall, without the prior written consent of the other, issue any press release or make any other public announcement or furnish any statement to any Person (other than either Parties' respective Affiliates) concerning the existence of this Agreement and the transactions contemplated by this Agreement, except for (i) general statement referring to the existence of this Agreement, specifying the Field of Use and identity of the Parties but no other details, (ii) disclosures made in compliance with sections 8.2. and 8.3. hereof, (iii) attorneys, consultants, and accountants retained to represent them in connection with the transactions contemplated hereby or as may be reasonably necessary to either Party's bankers, investors, attorneys or other professional advisors in connection with a merger or acquisition, provided such advisors are bound by confidentiality obligations essentially identical to those provided for herein, and (iv) occasional, brief comments by the respective officers of HPC, OraVax, PMC and VRI consistent with such guidelines for public statements as may be mutually agreed by HPC and VRI made in connection with routine interviews with analysts or members of the financial press. In addition, either Party (after consultation with counsel) in its own right may make such further announcements and disclosures, if any, as may be required by applicable laws and regulations, in which case the Party making the announcement or disclosure shall use its best efforts to give advance notice to, and discuss such announcement or disclosure with, the other Party. 8.5. Notwithstanding anything else to the contrary, LICENSEE agrees that VRI Technology shall be used only for the research, development, manufacture, use and sale of PRODUCTS and that in the event that the LICENSE is terminated, LICENSEE agrees not to use VRI Technology and LICENSEE COMPOUND Improvements for the research, development, manufacture, use or sale of any product or process including but not limited to PRODUCTS. 17 18 ARTICLE 9 - INVENTIONS AND PATENTS. 9.1. OWNERSHIP OF INVENTIONS. The entire right and title to technology, whether or not patentable, and any patent applications or patents based thereon, made or conceived during the term of this Agreement (other than Research Inventions as defined in APPENDIX A attached hereto, if any), (a) by employees or others acting solely on behalf of VRI or its Affiliates, shall be owned solely by VRI, (b) by employees or others acting solely on behalf of LICENSEE or its Affiliates, shall be owned solely by LICENSEE, and (c) by both employees or others acting on behalf of LICENSEE or its Affiliates and on behalf of VRI or its Affiliates shall be jointly owned by LICENSEE and VRI (the "JOINT INVENTIONS"). Each Party promptly shall disclose to the other Party the making, conception or reduction to practice of COMPOUND Improvements by employees or others acting on behalf of such Party. VRI and LICENSEE each hereby represents that all employees and other Persons acting on its behalf in performing its obligations under this Agreement shall be obligated under a binding written agreement to assign to it, or as it shall direct, all COMPOUND Improvements conceived or reduced to practice by such employees or other Persons. The provisions of this Section 9.1 are subject to Section 2.2 hereof. 9.2. PATENT PROSECUTION AND MAINTENANCE. VRI shall be responsible for and shall control the preparation, filing, prosecution, grant and maintenance of all LICENSED PATENTS. VRI shall prepare, file, prosecute and maintain such LICENSED PATENTS in good faith consistent with its customary patent policy and its reasonable business judgement, and shall consider in good faith the interests of LICENSEE in so doing. LICENSEE shall re-imburse VRI a share of reasonable costs of prosecution and maintenance of all LICENSED PATENTS as far as such costs are borne by VRI in the normal course of business after the Effective Date and for so long as the LICENSE to the relevant LICENSED PATENTS continues in effect. Such share shall be an amount equal to the total of the costs mentioned hereinabove multiplied by a fraction having as a numerator one (1), and as a denominator the total number of licences granted by VRI to Third-Parties with respect to LICENSED PATENTS. VRI shall furnish to HPC an estimated yearly budget for such costs. 9.3. ENFORCEMENT OF LICENSED PATENTS. In the event that LICENSED PATENTS are infringed by any Third-Party in the Field of Use, LICENSEE shall have the right, but not the obligation, to institute and prosecute any action or proceeding under LICENSED PATENTS with respect to such infringement, by counsel of its choice, including any declaratory judgement action arising from such infringement. Any amounts recovered from Third-Parties 18 19 with respect to the LICENSED PATENTS in such action shall be retained by LICENSEE. LICENSEE shall not have the right to settle, compromise or take any action in such litigation which diminishes, limits or inhibits the scope, validity or enforceability of LICENSED PATENTS without the express permission of VRI. LICENSEE shall keep VRI advised of the progress of such proceedings. In the event that a Third-Party is infringing any LICENSED PATENTS in the Field of Use and LICENSEE does not elect to institute an action, VRI shall have the right, but not the obligation, to commence an infringement suit under the LICENSED PATENTS against such infringer and shall retain any recovery ; provided that it so notifies LICENSEE. ARTICLE 10 - TERM AND TERMINATION. 10.1. EXPIRATION. Unless terminated earlier pursuant to this Article 10 or Article 12, the Agreement shall expire on the expiration of LICENSEE's obligations to pay royalties under the Agreement in accordance with the Royalty Term. Thereafter, LICENSEE and Sublicensees shall have a perpetual, fully paid-up, royalty-free, non-cancellable, worldwide license or sub-license (whichever is applicable) to the VRI Technology. 10.2. After First Commercial Sale of a PRODUCT or PRODUCTS in a country, royalties for any other PRODUCT or PRODUCTS introduced into such country will only be payable if a Valid Patent Claim is in effect in the United States or Europe at the time such PRODUCT or PRODUCTS are first offered for sale in such country, provided that if LICENSEE has ceased to sell a PRODUCT in a country prior to the payment of royalties in such country for ten (10) years, any additional PRODUCT or PRODUCTS sold in such country thereafter will be subject to royalties without regard to the existence of a Valid Patent Claim until VRI has received at least ten (10) years of Royalty payments in such country. 10.3. TERMINATION BY LICENSEE. LICENSEE shall have the right at any time as from January 1, 1998, in its sole discretion, to terminate this Agreement, by giving not less than three (3) months' prior written notice to VRI of such termination. 10.4. TERMINATION FOR CAUSE. (i) Either Party may terminate this Agreement, at its option, upon or after the breach of any material provision of the Agreement, if the breaching Party has not cured such breach within ninety (90) days after written notice thereof from the other Party. 19 20 (ii) LICENSEE or VRI may terminate this Agreement upon written notice to the other party if the other party makes a general assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy or has a receiver or trustee appointed for substantially all of its property; PROVIDED that in the case of an involuntary bankruptcy proceeding such right to terminate shall only become effective if the other party consents thereto or such proceeding is not dismissed within ninety (90) days after the filing thereof. Each of the parties hereto acknowledges and agrees that this Agreement (i) constitutes a license of Intellectual Property (as such term is defined in the United States Bankruptcy code, as amended (the "Code"), and (ii) is an executory contract, with significant obligations to be performed by each party hereto. The parties agree that LICENSEE may fully exercise all of its rights and elections under the Code, including, without limitation, those set forth in Section 365(n) of the Code. The parties further agree that, in the event that LICENSEE elects to retain its rights as a licensee under the Code, LICENSEE shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to LICENSEE not later than (a) the commencement of bankruptcy proceedings against VRI, unless VRI elects to perform its obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of VRI. 10.5. EFFECT OF EXPIRATION AND TERMINATION. Expiration or termination of the Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. The provisions of Sections 2.1.3.(v) and 9.1. and Articles 8 and 11 shall survive the expiration or termination of the Agreement. ARTICLE 11 - INDEMNITY. 11.1. DIRECT INDEMNITY. 11.1.1. Each Party shall indemnify and hold harmless the other Party, its Affiliates, and their respective directors, officers, shareholders, agents, consultants and employees from and against all Third-Party claims, demands, liabilities, damages and expenses, including attorneys' fees and costs (collectively, the "LIABILITIES") arising out of the breach of any material provision of this Agreement by, or an act or an omission of, the indemnifying Party, except to the extent such Liabilities resulted from the gross negligence, recklessness or intentional acts or omissions of the other Party. 11.1.2. LICENSEE shall defend, indemnify and hold harmless VRI, its Affiliates, licensors, their respective directors, officers, shareholders, agents, consultants and employees, from and against all Liabilities suffered or incurred arising out of any Third-Party claims in connection with the manufacture, design, testing, possession, distribution, use, sale or other disposition by or through LICENSEE, its Affiliates or Sublicensees of any PRODUCTS or COMPOUND, except in each case to the 20 21 extent such Liabilities resulted from the gross negligence, recklessness or intentional acts or omissions of VRI, and except where VRI's liability is established in accordance with EXHIBIT 1 to APPENDIX B attached hereto as far as supply of COMPOUND is concerned. 11.2. PROCEDURE. A Party (the "INDEMNITEE") that intends to claim indemnification under this Article 11 shall promptly notify the other Party (the "INDEMNITOR") of any Liability or action in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, jointly with any other Indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; PROVIDED, HOWEVER, that the Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other Party represented by such counsel in such proceedings. The indemnity obligations under this Article 11 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 11. The Indemnitee, its Affiliates, employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. ARTICLE 12 - FORCE MAJEURE. No Party (or any of its Affiliates) shall be held liable or responsible to the other Party (or any of its Affiliates) nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party (or any of its Affiliates) including but not limited to fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party (collectively, "EVENTS OF FORCE MAJEURE"); PROVIDED, HOWEVER, that the affected Party (i) shall immediately notify the other Party of the occurrence of any such Event of Force Majeure and (ii) shall exert all reasonable efforts to eliminate, cure or overcome any such Event of Force Majeure and to resume performance of its covenants with all possible speed; and PROVIDED, FURTHER, that nothing contained herein shall require any Party to settle on terms unsatisfactory to such Party any strike, lockout or other labor difficulty, any investigation or proceeding by any governmental authority or any litigation by any Third-Party. Notwithstanding the foregoing, to the extent that an Event of Force Majeure continues for a period in excess of six (6) months, the affected Party shall promptly notify in writing the other Party of such Event of Force Majeure and within four (4) months of the other Party's receipt of such notice, the Parties agree to negotiate in good faith either (i) to resolve the Event of Force Majeure, if possible, (ii) to extend by mutual agreement the time period to resolve, eliminate, cure or overcome such Event of Force Majeure, (iii) to amend this Agreement to the extent reasonably possible, or (iv) to terminate this Agreement. 21 22 ARTICLE 13 - ASSIGNMENT. This Agreement may not be assigned or otherwise transferred, nor, except as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred to any Third-Party by either Party without the consent of the other Party; PROVIDED, HOWEVER, that either Party may, without such consent, assign this Agreement and its rights and obligations hereunder to any of its Affiliates or in connection with the transfer or sale of all or substantially all of its business, or in the event of its merger or consolidation or change in control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Without limiting the generality of the foregoing, without the prior written consent of LICENSEE, VRI shall not under any circumstances assign or transfer any VRI Technology in the Field of Use unless the assignee expressly agrees in writing that the LICENSE shall remain in full force and effect pursuant to its terms and such assignment shall not relieve the assignor of any of its obligations under this Agreement. Each Party acknowledges that the other Party would suffer irreparable injury in the event of any breach of this Article 13 and that therefore the remedy at law for any breach or threatened breach hereof by any Party shall be inadequate. Accordingly, upon a breach or threatened breach hereof by any Party, the other Party shall, in addition and without prejudice to any other rights and remedies it may have, be entitled as a matter of right, without proof of actual damages, to seek specific performance hereof and to such other injunctive or equitable relief to enforce or prevent any violations (whether anticipatory, continuing or future) hereof. ARTICLE 14 - NOTIFICATION OF PATENT TERM RESTORATION - PATENT EXTENSIONS. VRI shall notify LICENSEE of (a) the issuance of each U.S. patent included within the LICENSED PATENTS, giving the date of issue and patent number for each such patent, and (b) each notice pertaining to any patent included within the LICENSED PATENTS which it receives as patent owner pursuant to the United Sates Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter called the "Act"), including notices pursuant to secs. 101 and 103 of the Act from Persons who have filed an abbreviated new drug application ("ANDA"). Such notices shall be given promptly, but in any event within five (5) calendar days of each such patent's date of issue or receipt of each such notice pursuant to the Act, whichever is applicable. VRI shall notify LICENSEE of each filing for patent term restoration under the Act, any allegations of failure to show due diligence and all awards of patent term restoration (extensions) with respect to the LICENSED PATENTS. Likewise, VRI or LICENSEE, as the case may be, shall inform the other Party of patent extensions and periods of data exclusivity in the rest of the world regarding any PRODUCTS and more generally the Parties shall diligently cooperate with respect to any procedures for patent and period of data exclusivity extensions, such as but not limited to Supplementary Protection Certificates, the above-mentioned Patent Term Restoration and corresponding GATT regulations. 22 23 ARTICLE 15 - ADVERSE EXPERIENCE REPORTING. During the term of the Agreement, each Party shall notify the other immediately of any information (howsoever obtained and from whatever source) concerning any unexpected side effect, injury, toxicity or sensitivity reaction, or any unexpected incidence, and the severity thereof, associated with the clinical uses, studies, investigations, tests and marketing of PRODUCTS and, to the extent feasible, any other product containing COMPOUND (hereinafter, a "PRODUCT"), or COMPOUND. For purposes of this Article 15, "UNEXPECTED" shall mean (x) for a non-marketed Product, an experience that is not identified in nature, severity or frequency in the current clinical investigator's confidential information brochure, and (y) for a marketed Product, an experience which is not listed in the current labeling for such Product, and includes an event that may be symptomatically and pathophysiologically related to an event listed in the labelling but differs from the event because of increased frequency or greater severity or specificity. Each Party further shall immediately notify the other of any information received regarding any threatened or pending action by an agency which may affect the safety and efficacy claims of a Product. Upon receipt of any such information, the Parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action ; provided, however, that nothing contained herein shall be construed as restricting either Party's right to make a timely report of such matter to any government agency or take other action that it deems to be appropriate or required by applicable law or regulation. ARTICLE 16 - SEVERABILITY. Each Party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such provisions. In case such provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions. ARTICLE 17 - MISCELLANEOUS. 17.1. NOTICES. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties hereto to the other shall be in writing, delivered personally or by facsimile and promptly confirmed by personal delivery, first class air mail or courier, postage prepaid (where applicable), addressed to such other Party at its address indicated below, or to such other address as the addressee 23 24 shall have last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee. - IF TO VRI: VIRUS RESEARCH INSTITUTE, INC. 61 Moulton Street Cambridge MA 02138 USA Attention: President Telefax: (617) 864-6334 Telephone: (617) 864-6232 - IF TO LICENSEE: MERIEUX ORAVAX S.N.C. c/o PASTEUR MERIEUX Serums & Vaccins S.A. 58, avenue Leclerc 69007 Lyon, France Attention: Corporate Vice-President, Secretary and General Counsel, Legal Department Telefax: 33.4.72.73.70.61 Telephone: 33.4.72.73.77.84 ORAVAX MERIEUX CO. c/o ORAVAX, INC. 38 Sidney Street Cambridge, MA 02139, USA; Attention: President & Chief Executive Officer Telefax: (617) 494-1741 Telephone: (617) 494-1339 17.2. APPLICABLE LAW. The Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts, without regard to the conflict of law principles thereof. 17.3. REPRESENTATIONS, WARRANTIES AND COVENANTS. 17.3.1. REPRESENTATIONS AND WARRANTIES OF MERIEUX ORAVAX S.N.C. (a) Merieux OraVax S.N.C. is a Societe en Nom Collectif duly organized and existing under the laws of France, with the corporate power to own, lease and operate its properties and to carry on its business as now conducted. (b) Merieux OraVax S.N.C. has all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) The execution, delivery and performance of this Agreement by Merieux OraVax S.N.C. does not conflict with or contravene the statuts of Merieux OraVax 24 25 S.N.C., nor will the execution, delivery or performance of this Agreement conflict with or result in a breach of, or entitle any party thereto to terminate, any material agreement or instrument to which Merieux OraVax S.N.C. is a party, or by which any of its assets or properties are bound. (d) This Agreement has been duly authorized, executed and delivered by Merieux OraVax S.N.C. and constitutes a legal, valid and binding agreement of Merieux OraVax S.N.C., enforceable against Merieux OraVax S.N.C. in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally. 17.3.2. REPRESENTATIONS AND WARRANTIES OF ORAVAX MERIEUX CO. (a) OraVax Merieux Co. is a General Partnership duly organized and existing under the laws of the State of Massachusetts, with the corporate power to own, lease and operate its properties and to carry on its business as now conducted. (b) OraVax Merieux Co. has all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) The execution, delivery and performance of this Agreement by OraVax Merieux Co. does not conflict with or contravene the by-laws of OraVax Merieux Co., nor will the execution, delivery or performance of this Agreement conflict with or result in a breach of, or entitle any party thereto to terminate, any material agreement or instrument to which OraVax Merieux Co. is a party, or by which any of its assets or properties are bound. (d) This Agreement has been duly authorized, executed and delivered by OraVax Merieux Co. and constitutes a legal, valid and binding agreement of OraVax Merieux Co., enforceable against OraVax Merieux Co. in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally. 17.3.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF VRI. (a) VRI is a corporation duly incorporated and validly existing as a corporation in good standing under the laws of the State of Delaware, with the corporate power to own, lease and operate its properties and to carry on its business as now conducted. (b) VRI has all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) The execution, delivery and performance of this Agreement by VRI does not conflict with or contravene its certificate of incorporation or by-laws, nor will the execution, delivery or performance of this Agreement conflict with or result in a breach of, or entitle any party thereto to terminate, any material agreement or instrument to which VRI is a party, or by which any of its assets or properties are bound. (d) This Agreement has been duly authorized, executed and delivered by VRI and constitutes a legal, valid and binding agreement of VRI, enforceable against 25 26 VRI in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally. (e) All LICENSED PATENTS listed on SCHEDULE A have been registered in, filed in or issued by the appropriate patent offices of each jurisdiction as indicated on such SCHEDULE A, and in each case is currently in effect and all maintenance fees and renewals thereof have been duly made with respect thereto. VRI owns or has full and exclusive rights to use and exploit under licenses (and to license or sublicense) all its rights under such LICENSED PATENTS and the LICENSED KNOW-HOW. There have been no material claims made against VRI asserting the invalidity or unenforceability of, or with respect to such LICENSED PATENTS, the misuse of such LICENSED PATENTS or the LICENSED KNOW-HOW, nor is VRI aware that any such claims exist. VRI has not received a notice of conflict of such LICENSED PATENTS or the LICENSED KNOW-HOW with the asserted rights of others, or otherwise challenging its rights to use any of such LICENSED PATENTS, or the LICENSED KNOW-HOW. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS SECTION, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, OR VALIDITY OF ANY PATENT RIGHTS ISSUED OR PENDING. 17.4. DISPUTE RESOLUTION. The Parties agree that if any dispute or disagreement arises between LICENSEE on the one hand and VRI on the other in respect of this Agreement, they shall follow the following procedure in an attempt to resolve the dispute or disagreement. (a) The Party claiming that such a dispute exists shall give notice in writing ("NOTICE OF DISPUTE") to the other Party of the nature of the dispute ; (b) Within twenty eight (28) business days of receipt of a Notice of Dispute, a nominee or nominees of LICENSEE and a nominee or nominees of VRI shall meet in person and exchange written summaries reflecting, in reasonable detail, the nature and extent of the dispute, and at this meeting they shall use their reasonable endeavours to resolve the dispute ; (c) If, within a further period of twenty eight (28) business days, the dispute has not been - resolved or if, for any reason, the required meeting has not been held, then the Parties agree that any dispute shall be referred to an arbitrator appointed by agreement of VRI and LICENSEE or, if no such agreement is reached within sixty (60) business days after a Party commences the arbitration, then by a panel of three arbitrators, with each of LICENSEE and VRI to select one arbitrator and those two arbitrators to select the third. If all three arbitrators have not been selected within sixty (60) business days after a Party commences the arbitration, then the Parties agree to abide by the selection of the remaining arbitrator to be named by a representative of the International Chamber of Commerce. The Parties agree that the Rules of the International Chamber of Commerce shall govern such arbitration and that any decision of the arbitrators shall be final and binding and shall be enforceable in any court of competent jurisdiction worldwide (regardless of whether one of the Parties fails or 26 27 refuses to participate in the arbitration) and shall be enforced pursuant to the New-York Convention on the Recognition and Enforcement of Arbitral Awards. The Parties agree that all arbitrations shall be conducted in the English language and that the exclusive venue of all arbitrations shall be in London, England. The Party determined by the arbitrators to be the Party substantially prevailing in the arbitration shall be entitled to recover its legal and consultants' fees and other costs reasonably incurred in connection with the arbitration (as determined by the arbitrators) ; and (d) in the event of a dispute regarding any payments owing under this Agreement, all undisputed amounts shall be paid promptly when due and the balance, if any, promptly after resolution of the dispute. 17.5. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made [-] are expressly superseded by this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties hereto. 17.6. INDEPENDENT CONTRACTORS. VRI and LICENSEE each acknowledge that they shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither VRI nor LICENSEE shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior consent of the other Party to do so. 17.7. AFFILIATES. Each Party shall cause its respective Affiliates to comply fully with the provisions of this Agreement to the extent such provisions specifically relate to, or are intended to specifically relate to, such Affiliates, as though such Affiliates were expressly named as joint obligors hereunder. 17.8. WAIVER. The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise. 17.9. NO IMPLIED LICENCE. Nothing in this Agreement shall be deemed to constitute, by implication or otherwise, the grant by LICENSEE to VRI, or by VRI to LICENSEE, of any license to, or interest in, or other rights under any patent, patent application, proprietary know-how, trade secrets or other intellectual property rights owned or possessed by LICENSEE or VRI, whichever is applicable, except as expressly provided for herein. 27 28 17.10. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above. For VIRUS RESEARCH INSTITUTE, INC. By: /s/ J. Barrie Ward ------------------------------------------------------------ Name: J. Barrie WARD Title: Chairman & Chief Executive Officer. For MERIEUX ORAVAX S.N.C. By: /s/ Jean-Jacques Bertrand ------------------------------------------------------------ Name: PASTEUR MERIEUX Serums & Vaccins S.A. Associe Gerant, represented by Jean-Jacques BERTRAND, Chairman, President & Chief Executive Officer By: /s/ Lance K. Gordon ------------------------------------------------------------ Name: ORAVAX JVM, Inc., Associe, represented by Lance K. GORDON, President and Chief Executive Officer For ORAVAX MERIEUX, CO. By: /s/ Herve Tainturier ------------------------------------------------------------ Name: MERIEUX AMERICA HOLDINGS, Inc. General Partner, represented by Herve TAINTURIER, President 28 29 By: /s/ Lance K. Gordon ------------------------------------------------------------ Name: ORAVAX JVM, Inc., general partner, represented by Lance K. GORDON, President OraVax and PMC each hereby guarantee that their respective Affiliates, including but not limited to Merieux OraVax S.N.C. and OraVax Merieux Co., shall perform all obligations which are expressly imposed upon them pursuant to and in accordance with this Agreement, and that OraVax and PMC shall each be bound by the terms and conditions of this Agreement imposed on LICENSEE as if OraVax and PMC were parties to this Agreement. For ORAVAX INCORPORATED By: /s/ Lance K. Gordon ------------------------------------------------------------ Name: Lance K. GORDON Title: President & Chief Executive Officer For PASTEUR MERIEUX SERUMS & VACCINS S.A. By: /s/ Jean-Jacques Bertrand ------------------------------------------------------------ Name: Jean-Jacques BERTRAND Title: Chairman, President & Chief Executive Officer. 29 30 CONFIDENTIAL TREATMENT ---------------------------------- SCHEDULE A ---------- LICENSED PATENTS ---------------------------------- [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 30 31 CONFIDENTIAL TREATMENT ---------------------------------- SCHEDULE B ---------- LIST OF HPC ANTIGENS ---------------------------------- [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 31 32 ------------------------------- APPENDIX A ---------- TERMS AND CONDITIONS APPLICABLE TO RESEARCH CONTRACT ------------------------------- 1. OBJECT. Pursuant to a mutually agreed upon research program which shall be definitely established by the Research Committee referred to in Section 2. hereinafter on terms substantially in accordance with the draft research program attached hereto as EXHIBIT 1 (the "RESEARCH PROGRAM"), VRI agrees to conduct research works described therein and LICENSEE agrees to support and fund such Research Program in accordance with the terms and conditions set forth here below. 2. OVERSIGHT OF THE RESEARCH PROGRAM. 2.1. OVERSIGHT. The Research Program shall be overseen and monitored by the Research Committee as described herein (the "COMMITTEE"). 2.2. MEMBERSHIP. VRI and LICENSEE shall each appoint two (2) persons (or such other number of persons as the Parties may determine) to serve on the Committee. Such representatives shall be qualified, by reason of background and experience, to assess the scientific progress of the Research Program. Each Party shall have the right to change its representation on the Committee upon written notice sent to the other. 2.3. CHAIR. The Committee shall be chaired by one representative of LICENSEE. 2.4. RESPONSIBILITIES. The Committee shall have authority to: (i) review and approve the draft Research Program and establish the definitive Research Program; (ii) make recommendations regarding the performance of the Research Program and the conduct of research works pursuant thereto, and monitor performance thereunder; (iii) modify the Research Program as it determines, for each twelve (12) month period during the term thereof; (iv) review any and all proposed publication or communication relating to the Research Program and the results therefrom; 32 33 (v) review any and all proposed filings of patent applications in connection with the Research Program. 2.5. MEETINGS. The Committee shall meet not less than two (2) times a year during the term of the Research Program, at such dates and times as agreed to by the Parties. Meetings in person shall normally take place at VRI's premises or such other place as may be mutually agreed upon. Meetings may be held by telecommunication means. At such meetings, the Committee shall discuss the Research Program and the status of performance by VRI under the Program, evaluate the results thereof and set priorities therefor. The Committee shall prepare written minutes of each meeting and a written record of all decisions whether made at a formal meeting or not. Such minutes shall incorporate semi-annual research reports prepared by VRI. 3. THE PRINCIPAL INVESTIGATOR. 3.1. PRINCIPAL INVESTIGATOR. The Principal Investigator of the Research Program shall be Dr. Kevin KILLEEN, an employee of VRI ("Principal Investigator"). VRI shall consult with LICENSEE regarding any replacement of the Principal Investigator, PROVIDED, however, that VRI shall have the right to make, and shall make, the final determination regarding any such replacement. The Principal Investigator shall be appointed as a member of the Committee and may be designated by VRI to act on behalf of VRI as co-chair on such Committee. 3.2. DUTIES. The Principal Investigator shall direct the Research Program and coordinate the efforts of other researchers involved in the performance of such Program. The Principal Investigator shall sit with the Committee as provided in Section 2. hereof, shall contribute to the performance of the duties set forth hereunder and shall be afforded the opportunity to actively participate in all Committee deliberations. The Principal Investigator shall provide reasonably detailed status reports of the Research Program to the Committee at six-month intervals, as well as at the earliest practicable time whenever, in the Principal Investigator's judgment, an invention is created or reduced to practice. The Principal Investigator shall devote such time and efforts as may be required to fulfill his duties hereunder and to ensure the successful administration and coordination of the Research Program. 3.3. REPLACEMENT. The Principal Investigator may be replaced at any time upon the written request of either Party. In such event, or if the then existing Principal Investigator is no longer able or is unwilling so to serve, the Parties shall endeavour to find a mutually acceptable substitute. If no mutually acceptable substitute can be agreed upon within a reasonable time, then HPC shall have the right to terminate forthwith the Research Program, and effect of such termination shall be as provided for in Section 6.2 hereof, it being understood that termination of the Research Program shall not entail termination of, and shall be without any prejudice whatsoever to, the License Agreement. 33 34 4. CONDUCT OF RESEARCH PROGRAM. 4.1. GOOD LABORATORY PRACTICES. The Research Program shall be conducted by VRI at VRI's laboratories. VRI shall use all reasonable efforts to complete research works in accordance with the said Program. Any research work performed by VRI pursuant hereto shall be in compliance with current Good Laboratory Practices (cGLP) as applicable in the United States of America. 4.2. LABORATORY NOTEBOOKS. VRI shall cause its employees to maintain laboratory notebooks. Such laboratory notebooks shall set forth such work in detail, including a clear description of the purposes for which the work has been undertaken and the results expected; sufficient details, diagrams, plans, sketches and identification of materials used, formulations and operating conditions under which the work was conducted as may be necessary to understand and reproduce the work conducted; identification of any intermediate or final results achieved; and if such laboratory notebooks contain any interpretations of data, they shall also describe the rough data upon which such interpretations have been based. VRI shall further cause its employees, agents and permitted subcontractors maintaining such laboratory notebooks to have their work corroborated periodically, which corroboration shall include at least personal witnessing of the notebooks indicating that the witness has read and understood the material on the page witnessed on the date that he or she signed it. 5. FINANCIAL CONDITIONS. 5.1. SUPPORT COMMITMENT. In consideration of the work performed by VRI pursuant to and accordance with the Research Program, LICENSEE shall make available to VRI during the Research Program a maximum of ________ United States dollars (the "Commitment"). The Commitment shall be inclusive of all costs incurred by VRI implementing the Research Program. 5.2. PAYMENTS SCHEDULE. Support payments shall be made by LICENSEE to VRI in ............ quarterly payments of ....................... in advance with the first payment to be made within fifteen (15) days of the Effective Date of this Agreement, and the other payments payable on the first day of each of the .......... subsequent Calendar Quarters. 5.3. REPORTING. VRI shall report and reconcile budgeted versus actual expenditures on a semi-annual basis. Two copies of the semi-annual report shall be sent to HPC. Upon reasonable advance request and at reasonable times (but not on more than two occasions), HPC shall have the right on demand to receive full and true financial information regarding any and all matters affecting compliance with Research Program and any amounts funded hereunder and to inspect the relevant books and records of VRI relating thereto, at HPC expenses, using representatives 34 35 of its choice. VRI's books of account and all necessary supporting data shall be kept for at least three (3) years following the end of the fiscal year to which each will pertain. In the event that amounts funded pursuant hereto exceeds actual expenditures incurred by VRI, VRI shall promptly reimburse such excess to HPC, unless the Parties mutually agree on an extension of the Research Program which would require consummation of such excess. 5.4. NO CONFLICT WITH RESEARCH PROGRAM. VRI agrees that the Commitment provided by LICENSEE shall be applied to the Research Program and may not, without LICENSEE prior written approval, be used in support of any other research at VRI. 5.5. TITLE TO EQUIPMENT. VRI shall retain title to any equipment purchased with funds provided by LICENSEE under this Agreement, if such purchase is mutually agreed upon as part of the Research Program budget. 6. TERM OF THE RESEARCH PROGRAM. 6.1. The term of the Research Program shall be twelve (12) months as from [January 1], 1997, unless terminated earlier upon termination of this Agreement in accordance with Article 10 of the License Agreement. 6.2. HPC shall be entitled to forthwith terminate the Research Program and cease funding thereof (i) in the event of disagreement between the Parties as to the replacement of the Principal Investigator under Section 3.3 hereinabove, and (ii) in the event of a material breach by VRI of any VRI's obligations and covenants hereunder. In the event of any such termination, VRI shall reimburse HPC of any amounts paid by HPC and found in excess of VRI's actual expenditures (reasonable termination costs excluded) further to an accounting audit conducted in accordance with Section 5.3 above. VRI's right to receive any unpaid balance otherwise committed by HPC as support commitment to the Research Program pursuant to Section 5.1 hereof shall become forfeited and no further payments with respect to Research Program shall be due to VRI by HPC. Termination of the Research Program pursuant to this Section 6.2. shall not entail termination of, and shall be without any prejudice whatsoever to the License Agreement. 7. CONFIDENTIALITY. In order to facilitate the Research Program, either Party may disclose confidential or proprietary information owned or controlled by it to the other. It is hereby understood and agreed that such information shall be deemed "CONFIDENTIAL INFORMATION" as defined in Article 8 of the License Agreement and treated as such. 35 36 8. PUBLICATIONS. Each Party shall have the right to publish or present the Results of the Research Program and announce scientific progress of the Research Program, provided such publication, presentation or announcement (and any revisions thereof, a "Publication") is submitted to the other Party through the Committee at least sixty (60) days prior to submitting it to any Third-Party (including any editing person). The other Party shall have sixty (60) days after receipt of the draft Publication to review and comment on such draft. Upon notice within such sixty (60) day period by the other Party that such Party reasonably believes the Publication would amount to the public disclosure of a patentable invention upon which a patent application should be filed prior to any such disclosure, submission of the concerned Publication to Third-Parties shall be delayed for a ninety (90) day period from the date of said notice, or for such longer period which may appear necessary for appropriately drafting and filing a patent application covering such invention. If the other Party reasonably believes that the Publication would amount to the public disclosure of such other Party's Confidential Information, said other Party may request deletion of such information from the proposed Publication. In addition, each Party shall duly take into account comments made by the other Party on any Publication and shall accept to have employees or others acting on behalf of the other Party be mentioned as co-authors on any Publication describing results to which such persons will have contributed. 9. INVENTIONS. Ownership of inventions, whether or not patentable, and of any patent applications and patents based thereon, which may result from the Research Program (the "RESEARCH INVENTIONS") shall be established in accordance with the following: (i) Any Research Invention which is solely directed to the VRI Technology and/or COMPOUND, per se, shall be owned by VRI and automatically licensed by VRI to HPC subject to and in accordance with the LICENSE, except that if any such invention is patented, the term of the corresponding patent shall not be taken into account to determine the Royalty Term; (ii) Any Research Invention solely directed to an HPC Antigen or an Other Hp Antigen, shall be owned by HPC; (iii) Any Research Invention which is directed to the combination of the VRI Technology and an antigen or antigens or another piece of technology controlled by HPC rather than antigens in general, shall be jointly owned by VRI and HPC and be considered a Joint Invention. VRI's interest in such Joint Invention shall be deemed automatically licensed by VRI to HPC subject to and in accordance with the LICENSE, except that if any such invention is patented, the term of the corresponding patent shall not be taken into account to determine the Royalty Term. Except for the rights granted to HPC in the Field of Use under the LICENSE, neither Party shall exploit a Joint Invention without the prior agreement in writing of the other Party, provided VRI may request HPC to enter into good faith negotiations if VRI wishes to exploit any such Joint 36 37 Invention outside the Field of Use or within the scope of the non-exclusive LICENSE. (iv) Any Research Invention which is directed to the combination of VRI Technology and to antigens in general shall be owned by VRI and automatically licensed by VRI to HPC, subject to and in accordance with the LICENSE, except that if any such invention is patented, the term of the corresponding patent shall not be taken into account to determine the Royalty Term. 37 38 CONFIDENTIAL TREATMENT ------------------------------- APPENDIX B ---------- TERMS AND CONDITIONS APPLICABLE TO COMPOUND SUPPLY ------------------------------- 1. THE SUPPLY AGREEMENT. VRI has stated to LICENSEE its current intention to establish itself as a manufacturer of the COMPOUND. Provided VRI can reasonably demonstrate that it shall be able to timely manufacture COMPOUND under current Good Manufacturing Practice at competitive cost in sufficient quantities, LICENSEE shall purchase from VRI LICENSEE's requirements for COMPOUND for use in the manufacture of PRODUCTS under the terms and conditions of a supply agreement (the "SUPPLY AGREEMENT"), which agreement shall be negotiated in good faith in a timely fashion by the Parties hereto so as to become effective at least six months before LICENSEE's expected First Commercial Sale of PRODUCTS. The Parties agree to negotiate in good faith in a timely fashion the detailed terms and conditions of the Supply Agreement which shall include at a minimum the following terms and conditions set forth in this Article 1, as well as such other terms and conditions as may be agreed upon by the Parties. 2. COMPOUND REQUIREMENTS. The Supply Agreement shall provide that VRI shall manufacture or have manufactured and LICENSEE shall purchase from VRI, LICENSEE's entire requirements of COMPOUND (clinical lots as well as commercial lots) for PRODUCTS and that LICENSEE shall purchase such COMPOUND for its own use in manufacturing PRODUCTS only and shall not be permitted to sell or re-sell COMPOUND to any Third-Party. 3. SPECIFICATIONS. The Supply Agreement shall provide for (i) specifications that VRI shall be obligated to comply with; (ii) quality control criteria and procedures; and (iii) LICENSEE's reasonable acceptance criteria for the COMPOUND. 4. FORECASTS AND ORDERS. The Supply Agreement shall provide for the establishment of reasonable rolling forecasts and placement of orders which shall take into account VRI's need to rationally plan its manufacturing of COMPOUND consistent with its other manufacturing obligations. 5. PRICE. The price of COMPOUND shall be negotiated in good faith by the Parties and set forth in the Supply Agreement, but in no event shall such price be [*]. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 38 39 6. BACK-UP INVENTORIES. Pursuant to the Supply Agreement, VRI shall agree to supply, and LICENSEE shall agree to maintain inventory of COMPOUND in its own facility sufficient to meet its forecasted needs. 7. WARRANTIES. Pursuant to the Supply Agreement, VRI shall warrant that (i) COMPOUND at the time of delivery shall meet the specifications referred to in Section 3. hereinabove; (ii) COMPOUND shall be manufactured in accordance with current Good Manufacturing Practices in effect in the country where it is manufactured or in compliance in all material respects with the principles of the current Good Manufacturing Practices in effect in any other country where PRODUCTS are manufactured and/or sold (if more stringent than cGMP first referred above) and any relevant establishment and product licenses issued by any public health authority having jurisdiction. LICENSEE shall inform VRI of the countries in which PRODUCT is to be licensed to be sold and of any and all Agency(ies) responsible in such countries. Upon request, LICENSEE shall provide VRI with information regarding the regulatory requirements in each such country. VRI SHALL DISCLAIM ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS. 8. QUALITY AUDIT. Pursuant to the Supply Agreement, VRI shall permit LICENSEE, upon reasonable notice and at reasonable times, at LICENSEE's expense, to audit in cooperation with VRI's personnel production, packaging, quality control and forwarding facilities of VRI and any of its significant suppliers as they relate to VRI's manufacturing responsibilities under the Supply Agreement. 9. ADVERSE EVENTS REPORTING. Under the Supply Agreement, the Parties shall establish a procedure for monitoring and reporting adverse drug experiences, consistent with Article 15 of the License Agreement. 10. ASSURANCE OF SUPPLY. Under the terms of the Supply Agreement, LICENSEE and VRI shall cooperate to anticipate LICENSEE's reasonable long-term requirements for COMPOUND, and VRI shall take reasonable measures to assure that LICENSEE's reasonable requirements can be met, which measures may include the qualification of more than one manufacturing facility (including one such facility that may be operated by LICENSEE or an Affiliate of LICENSEE, in which case VRI shall transfer manufacturing Know-how in accordance with Section 11 hereinafter) and/or maintenance of safety stocks of COMPOUND as provided for in Section 6 hereof. 11. TRANSFER OF MANUFACTURING TECHNOLOGY. The Supply Agreement shall contain provisions for the compulsory transfer of Manufacturing Know-How from VRI to HPC under certain circumstances such as, but not necessarily limited to, durable failure to supply by VRI, VRI's Affiliates or contractors, VRI's material breach of the Supply Agreement or VRI's bankruptcy. 39 40 12. NO ASSIGNMENT; NO SUB-CONTRACT. VRI shall neither assign nor sub-contract any part of its rights and obligations under this APPENDIX B, or any part of its manufacturing responsibility under the Supply Agreement, to any third Party without the prior written agreement of LICENSEE which shall not unreasonably withheld. 13. LIABILITIES, INDEMNIFICATION AND INSURANCE. The Supply Agreement shall include provisions relating to liabilities, indemnification and insurance substantially similar to the provisions of the Indemnity Agreement herewith attached as EXHIBIT 1. ----------------------------- EXHIBIT 1 --------- INDEMNITY AGREEMENT ----------------------------- WHEREAS, HPC (hereinafter called "Purchaser") and VRI (hereinafter called "Supplier") have entered into a License Agreement (the "License") relating to the use of a certain compound (the "Compound") known as polyphosphazene for use as an adjuvant and/or a delivery system in vaccines against Helicobacter pylori infections, dated March ....., 1997; WHEREAS, pursuant to the License, Supplier has agreed to sell, and Purchaser has agreed to purchase, certain quantities of Compound, under terms and conditions set forth in short form in the relevant provisions contained in APPENDIX B of the License and to be finally established in a Supply Agreement to be negotiated in good faith in a timely manner by the parties hereto; WHEREAS, Purchaser is planning to enter into human clinical trials using Compound; WHEREAS, Supplier has already obtained clinical trial supplies of Compound under a development agreement with a third-party and is planning to set-up a sub-contract for having Compound manufactured by a third-party manufacturer, AeroJet General Corporation of Akron, Ohio, United States of America (the "SUBCONTRACTOR"); WHEREAS, in order to allow these actions to be timely undertaken, the parties have agreed to set-up terms and conditions applicable to liabilities and indemnification in connection with the early supply of clinical lots of Compound which have previously been supplied to Purchaser, in advance of entering into the definitive Supply Agreement. NOW, THEREFORE, in consideration of the premises herein and for other good and valuable consideration, the parties hereto agree as follows: 1. PURPOSE. This Agreement shall set forth the terms and conditions under which Purchaser shall provide and maintain insurance coverage and indemnify Supplier in certain circumstances in connection with the use of Compound by Purchaser in human clinical trials. 40 41 2. INSURANCE. Each party, at its own expense, will maintain, with insurers which are rated A or better by A.M. BEST, a General Product Liability, Environmental and, in the case of Purchaser, Clinical Trial insurance program(s) in an amount commensurate with the risks incurred. Purchaser will cause (a) Supplier and Sub-contractor to be named as an additional insured under Purchaser's General & Product Liability and Environmental Liability insurance policies (but under those policies only and with coverage limited to Claims as defined in Section 4 hereof), (b) such insurance to be designated as primary to any insurance which may be carried by Supplier, and (e) such insurance to provide that it can only be cancelled or materially altered upon not less than thirty (30) days notice to Supplier. Purchaser shall not assert against Supplier or Sub-contractor and hereby waives any and all claims against Supplier for losses, damages, liability, judgments, costs and expenses (including attorney's fees) imposed upon or incurred by Purchaser as a result of or arising out of any claim covered by such insurance to the extent of such coverage and to the extent Purchaser will have agreed to indemnify Supplier pursuant to Section 4 hereinafter. 3. INSURANCE CERTIFICATES. Prior to issuing the first purchase order to Supplier and from time to time thereafter as reasonably required by Supplier, Purchaser shall furnish Supplier with (an) insurance certificate(s) evidencing compliance with Insurance Section above, and reciprocally. 4. INDEMNITY. Notwithstanding the existence or lack of insurance, Purchaser shall, at its sole cost and expense, defend Supplier from any and all claims, demands, actions or causes of action, at law or in equity (including but not limited to claims by Purchaser's employees and customers and including an environmental liability) (a "Claim") and indemnify and hold Supplier harmless from all damages, liabilities, losses, costs, judgments, orders, assessments, interest, penalties, fines, settlement payments, costs and expenses (including, without limitation, reasonable attorneys fees and other investigation and defense costs and expenses) incurred by Supplier which arise out of or result in any way from bodily injury (including death) or property damage, however arising out of, or related in any way, to Purchaser's possession, use, sale, distribution, processing, shipment, storage or disposal of the Compound or any derivative thereof sold or otherwise transferred by Supplier to Purchaser for the purpose described in the preamble to this Agreement. Purchaser shall have the duty to defend, indemnify and hold Supplier harmless against any actual or alleged negligence by Supplier. In the event that Purchaser fails to promptly and diligently investigate and defend or settle any Claim then Supplier shall have the right, at Purchaser's cost, expense and risk, from that time forward to have sole control of the defense of the Claim and all negotiations for its settlement or compromise. Notwithstanding the foregoing, the INDEMNITY provided for hereinabove shall not apply to the extent that the Claim arises out of, is based upon or results from the gross negligence or willfull misconduct (which shall include misrepresentation or concealment of data relating to toxicity of Compound) of Supplier, or an event having occurred before the time that title to Compound (or to any shipment or unit thereof) passes to Purchaser, in which cases Supplier shall defend, indemnify and hold Purchaser harmless in the 41 42 same manner and to the same extent than provided for hereinabove where Purchaser is the indemnifying party, and PROVIDED further that, in any event, the INDEMNITY provided for hereinabove shall not apply to the extent the Claim is a claim for environmental liability arising out of, based upon or resulting from an event occurring at a Supplier's facility, or at a Sub-contractor's facility, or a facility of another Supplier's sub-contractor, or at any other place (including during transportation) prior to the time title to Compound (or to any shipment or unit thereof) passes to Purchaser. The Indemnity provided for herein shall be limited to Claims relating to units of Compound sold or otherwise transferred by Supplier to Purchaser for the purpose described in the preamble to this Agreement, as identified in the invoices and/or control certificates and other commercial and pharmaceutical documentation issued by Supplier to Purchaser along with the delivery of such units of Compound. 5. COSTS & EXPENSES. The indemnities in INDEMNITY Paragraph of this Agreement include all costs and expenses reasonably required to investigate and to defend any such claim or action, any amount paid or required to be paid to settle such claim or action, or any amount paid or required to be paid to settle such claim or action, or any amount finally awarded by a court as damages or otherwise in any such action, provided that neither party will have an obligation to pay or to reimburse the other party for the amount of any internal expenses (including, but not limited to, compensation paid to its employees) that it may incur in connection with its cooperation in the investigation and/or defense of such claim or action. 6. LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY PARTY HAVE ANY LIABILITY TO THE OTHER PARTY HEREUNDER OR OTHERWISE FOR ANY LOSS OF PROFITS, COST OR COVER OR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES, HOWEVER CAUSED, WHETHER BY THE OTHER PARTY'S BREACH OF ANY EXPRESS OR IMPLIED WARRANTY, NEGLIGENCE, STRICT LIABILITY UNDER LAW OR OTHERWISE. 7. SURVIVAL. The provisions of this Agreement shall survive the expiration and/or termination of this Agreement, unless this Agreement is superseded by the Supply Agreement, in which case the provisions relating to Liabilities and Indemnification contained in said Supply Agreement will supersede this Agreement. 42 EX-10.27 4 LICENSE AGREEMENT (HARVARD & VIRUS) 1 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. EXHIBIT 10.27 LICENSE AGREEMENT This Agreement is made and entered into between President and Fellows of Harvard College (hereinafter HARVARD) having offices at the Office for Technology and Trademark Licensing, 124 Mt. Auburn Street, Suite 410 South, Cambridge, MA 02138 and Virus Research Institute (hereinafter LICENSEE), a corporation of Massachusetts, having offices at 61 Moulton Street, Cambridge, MA 02139. Whereas HARVARD is the owner by assignment of the entire right, title and interest in a patent application [*] in the foreign patent applications corresponding, thereto, and in the inventions described and claimed therein and any patents issuing thereon: Whereas HARVARD is committed to a policy that ideas or creative works produced at HARVARD should be used for the greatest possible public benefit; and Whereas HARVARD accordingly believes that every reasonable incentive should be provided for the prompt introduction of such ideas into public use, all in a manner consistent with the public interest; and Whereas LICENSEE is desirous of obtaining, an exclusive worldwide license in order to practice the above-referenced invention covered by PATENT RIGHTS in the United States and in certain foreign countries, and to manufacture, use and sell in the commercial market the products made in accordance therewith; and Whereas HARVARD is desirous of granting a license to LICENSEE in accordance with the terms of this Agreement. Now therefore, in consideration of the foregoing premises, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 PATENT RIGHTS shall mean any and all patents or patent applications attached hereto in Appendix A, the inventions described and claimed therein, and any divisions, continuations, continuations-in-part directed to subject matter specifically described in the applications and patents listed in Appendix A, patents issuing thereon, foreign counterparts thereof or reissues or reexaminations thereof, which will 1 2 be automatically incorporated in and added to this Agreement and shall periodically be added to Appendix A and made a part thereof. 1.2 LICENSED PRODUCTS shall mean products which in the country where sold or manufactured are covered by (i) an issued, unexpired claim contained in PATENT RIGHTS which has not been declared invalid or unenforceable by a court of competent jurisdiction or administrative agency or (ii) a claim of a pending patent application of PATENT RIGHTS which application has been pending for a period of no more than five years including the pendency of any parent application in which the claim is supported. The period of pendency of a United States provisional application shall not be considered in determining such five (5) year period. 1.3 LICENSED PROCESSES shall mean processes which in the country where used are covered by (i) an issued, unexpired claim contained in PATENT RIGHTS which has not been declared invalid or unenforceable by a court of competent JURISDICTION OR administrative agency or (ii) a claim of a pending patent application of PATENT RIGHTS which application has been pending for a period of no more THAN FIVE YEARS including the pendency of any parent application in which the claim is supported. The period of pendency of a United States provisional application shall not be CONSIDERED IN determining such five (5) year period. 1.4 NET SALES means the total received by LICENSEE from sale of LICENSED PRODUCTS less transportation charges and insurance, sales taxes, use TAXES, EXCISE taxes, value added taxes, customs duties or other imports, to the extent itemized on invoice, normal and customary quantity and cash discounts (to THE EXTENT ALLOWED), allowances and credits on account of rejection or return of LICENSED PRODUCTS and rebates including but not limited to those REQUIRED BY A GOVERNMENT OR AGENCY THEREOF. In the event that a LICENSED PRODUCT includes, a component which has therapeutic and/or prophylactic activity ("Active Component(s)") covered by a PATENT RIGHT (Patented Component(s)) and Active Components not covered by a PATENT RIGHT (Unpatented Component(s)) (such PRODUCT being a Combined Product), then NET SALES shall be the amount which is normally received by LICENSEE FROM A SALE OF THE PATENTED Component(s) when sold separately in an arm's length transaction with an unaffiliated third party. If the Patented Component(s) are not sold SEPARATELY, THEN NET SALES upon which royalty is paid shall be the NET SALES of the Combined Produce multiplied by a fraction, the numerator of which is the cost for producing the Patented Components and the denominator of which is the cost for PRODUCING THE COMBINED Product. 1.5 AFFILIATES shall mean any company, corporation, or business (i) in which LICENSEE directly or indirectly owns or controls at least fifty percent (50%) of the VOTING STOCK, or (ii) which directly or indirectly owns or controls at least fifty percent (50%) of the voting stock of LICENSEE or (iii) the majority ownership of which is DIRECTLY or indirectly under common control with LICENSEE. 2 3 1.6 BIOLOGICAL MATERIAL shall mean the materials supplied by HARVARD (identified in Appendix B). 1.7 TECHNOLOGY shall mean any and all information or PATENT RIGHTS, or BIOLOGICAL MATERIAL supplied by HARVARD to LICENSEE. 1.8 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party licensed by LICENSEE to make, have made, use or sell any product or use any process under PATENT RIGHTS. 1.9 NON-ROYALTY SUBLICENSE INCOME shall mean sublicense issue fees, sublicense maintenance fees, sublicense milestone payments other than those listed in Article 3.6, and similar lump-sum royalty payments made by SUBLICENSEES to LICENSEE on account of sublicenses pursuant to this Agreement but excluding any payments by SUBLICENSEES constituting (i) bona fide product research and development expenses and (ii) loans. 1.10 IMPROVEMENT INVENTIONS shall mean any inventions or discoveries that ENHANCE, substitute for, or are useful with the products, procedures or processes described in PATENT RIGHTS (and which are not included in PATENT RIGHTS) to the extent they are (i) dominated by any claims of a pending and/or issued patent or patent application which is then included in the PATENT RIGHTS, and HARVARD'S OWNERSHIP INTEREST in any United States or foreign patents and patent application thereon, and (ii) made (i.e., conceived and reduced to practice) by Dr. John Collier and/or Michael Starnbach solely or jointly with others directly supervised in their laboratories at Harvard Medical School. ARTICLE II GRANT 2.1 For the term of this Agreement, HARVARD hereby grants to LICENSEE and LICENSEE accepts, subject to the terms and conditions hereof, a worldwide license under PATENT RIGHTS and a worldwide license to use the BIOLOGICAL MATERIAL, to make and have made, to use and have used, to sell and have sold the LICENSED PRODUCTS, and to practice the LICENSED PROCESSES. SUCH LICENSE shall include the right to grant sublicenses. HARVARD agrees it will not grant licenses to others except as required or as permitted in paragraph 2.2 (b). To the extent required by an agreement with a government agency that funded research which LED TO PATENT RIGHTS, LICENSEE agrees during the period of exclusivity of this license in the United States that any LICENSED PRODUCT produced for sale in the United States will be manufactured substantially in the United States. 3 4 2.2 The granting and acceptance of this license is subject to the following conditions: (a) HARVARD's "Statement of Policy in Regard to Inventions, Patents and Copyrights" dated March 17, 1986, Public Law 96-517, Public Law 98-620. Any right granted in this Agreement greater than that permitted under Public Law 96-517 or Public Law 98-620 shall be subject to modification as may be required to conform to the provisions of that statute. (b) HARVARD's right to make and to use and to grant non-exclusive licenses to make and to use, for academic research purposes only and not for any commercial purpose, the subject matter described and claimed in PATENT RIGHTS, or the BIOLOGICAL MATERIAL. 2.3 HARVARD hereby grants to LICENSEE the right to extend the licenses granted or to be granted in paragraph 2.1 to an AFFILIATE subject to the terms and conditions hereof. 2.4 All rights reserved to the United States Government and others under Public Law 96-517 and 98-620 shall remain and shall in no way be affected by this Agreement. 2.5 LICENSEE has provided HARVARD with a development plan for developing and obtaining regulatory approval of the LICENSED PRODUCT selected BY LICENSEE, which development plan includes milestones. LICENSEE shall exert reasonable efforts under THE CIRCUMSTANCES TO ACHIEVE SUCH milestones. In the event LICENSEE subsequently indicates in writing to HARVARD that such milestones cannot be met or fails to meet such milestones, LICENSEE shall promptly notify HARVARD, and LICENSEE and HARVARD shall promptly ENTER INTO good faith negotiations to reconsider such milestones. In the event that the parties cannot agree to the milestones within sixty (60) days after beginning good FAITH NEGOTIATIONS, THE matter shall be submitted to arbitration to determine the milestones and the time period therefor which should be met pursuant to this Section. THE ARBITRATOR IN SETTING AND determining milestones shall consider the state of technology; the efforts exerted by LICENSEE, the business circumstances of LICENSEE and the public INTEREST OBJECTIVES to HARVARD'S licensing program; and technical and regulatory problems. Thereafter, LICENSEE shall exert reasonable efforts to achieve such milestones. In the event that LICENSEE cannot meet the milestones set by arbitration because of technological or regulatory problems, HARVARD shall not unreasonably deny an extension of time to meet the milestones, upon a showing by LICENSEE that it has made good faith reasonable efforts to meet the milestones. If LICENSEE (i) fails to meet the milestones established by agreement of the parties and (ii) fails to obtain extensions of such milestones established by arbitration and (iii) 4 5 LICENSEE has not exerted good faith reasonable efforts to meet such milestones, as its sole and exclusive remedy HARVARD shall have the right to terminate or convert the licenses to non exclusive licenses by providing to LICENSEE sixty (60) days prior written notice. LICENSEE shall ensure that for any PRODUCT being developed or commercialized by a SUBLICENSEE, such SUBLICENSEE shall assume the obligations imposed on LICENSEE under this paragraph. The efforts of an AFFILIATE, SUBLICENSEE or collaborator of LICENSEE shall be considered as efforts of LICENSEE. 2.6 The above licenses to sell any LICENSED PRODUCT include the right of LICENSEE, its AFFILIATES, and SUBLICENSEES to grant to the purchaser thereof the right to use or resell such purchased LICENSED PRODUCT without payment of a further royalty. 2.7 HARVARD hereby grants to LICENSEE an exclusive option to negotiate an exclusive license to IMPROVEMENT INVENTIONS. It is the intent of the parties that such license shall be under substantially the same terms and conditions as this LICENSE AND THAT LICENSEE shall only be required to pay one royalty for each LICENSED PRODUCT. HARVARD shall notify LICENSEE promptly, in writing, of any IMPROVEMENT INVENTION, and LICENSEE shall notify HARVARD, in writing, within thirty (30) days after receipt of the written notification from HARVARD as to whether or not LICENSEE is exercising the option. If the option is not exercised within such thirty (30) day period, LICENSEE shall no longer have ANY RIGHTS TO THE IMPROVEMENT INVENTION as to which notice was received. If the option is exercised, the parties shall negotiate a license in accordance with this PARAGRAPH 2.7, in good faith, and if an agreement is not reached within six (6) months thereafter, the rights granted under this paragraph 2.7 with respect to SUCH IMPROVEMENT INVENTION shall terminate. If during such thirty (30) days or six month period, HARVARD desires to file a patent application with respect TO THE IMPROVEMENT INVENTION, LICENSEE shall bear the cost of filing thereof if LICENSEE still desires a license thereunder, provided that the filing of such patent APPLICATION IS NECESSITATED BY A BAR DATE or the parties have reached final agreement as to the financial terms of the license or LICENSEE has requested such filing. 5 6 CONFIDENTIAL TREATMENT ARTICLE III ROYALTIES 3.1 LICENSEE shall pay to HARVARD a non-refundable license fee as follows: [*] 3.2 (a) LICENSEE shall pay HARVARD, during the term of the license granted in Section 2.1, (i) a running royalty of [*], and (ii) [*] of running royalties [*] received by LICENSEE or its AFFILIATES from a SUBLICENSEE for LICENSED PRODUCTS sold by a SUBLICENSEE. (b) In the event that a sublicense agreement does not require a SUBLICENSEE to pay running royalties, LICENSEE shall pay HARVARD [*]. 3.3 Beginning in calendar year 2005 and each calendar year thereafter, HARVARD shall have the right to terminate or render non-exclusive this license IN THE EVENT that LICENSEE does not pay to HARVARD at least [*] in ROYALTIES. In the event that actual royalties are not at least equal to the above amounts for a specified calendar year, LICENSEE shall have the right to pay any DIFFERENCE BETWEEN such minimum amounts and the actual royalties paid in satisfaction of its obligations under this Agreement, which shall be due and payable within sixty (60) days of the end of the applicable calendar year. 3.4 In the event that LICENSEE is required to pay royalties to one or more third parties under patents other than PATENT RIGHTS COVERING LICENSED PRODUCTS OR LICENSED PROCESSES, LICENSEE shall be entitled to a credit against royalties due HARVARD in an amount equal to [*]. 3.5 LICENSEE shall pay HARVARD the following amounts within sixty (60) DAYS AFTER THE following milestone is achieved by LICENSEE or its SUBLICENSEE for each LICENSED PRODUCT: (i) [*] (ii) [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 6 7 CONFIDENTIAL TREATMENT (iii) [*] 3.6 Only one royalty shall be due and payable for a LICENSED PRODUCT and use thereof irrespective of the number of patents included within PATENT RIGHTS which are applicable to such LICENSED PRODUCT and use. 3.7 Unless this agreement is earlier terminated, the initial payment under paragraph 3.1 and the payments due under paragraph 6.1 shall be due and payable on the earlier of (i) six (6) months after the effective date of this agreement or (ii) the date on which LICENSEE is granted a license under U.S. Patent No. [*] by the UNITED STATES Government. ARTICLE IV REPORTING 4.1 LICENSEE shall provide written annual reports within sixty (60) days after JUNE 30 of each calendar year which shall include but not be limited to: reports of PROGRESS on research and development, regulatory approvals, manufacturing, sublicensing, marketing and sales during the preceding twelve (12) months. 4.2 LICENSEE shall report to HARVARD the date of first sale of LICENSED PRODUCTS in each country within thirty (30) days of occurrence. 4.3 Commencing with the calendar year half in which NET SALES first occur, LICENSEE agrees to submit to HARVARD within sixty (60) days after the calendar half years ending June 30 and December 31, reports setting forth for the preceding six (6) month period the amount of the LICENSED PRODUCTS sold by LICENSEE, its AFFILIATES and SUBLICENSEES in each country, the NET SALES thereof, and the amount of royalty due thereon and with each such report pay the amount of royalty due. Such report shall be certified as correct by an officer of LICENSEE and SHALL INCLUDE a detailed listing of all deductions from NET SALES, or from royalties as specified herein. Such report shall also specify which PATENT RIGHTS are used in or by each LICENSED PRODUCT generating royalty income. If no royalties ARE DUE to HARVARD for any reporting period, the written report shall so state. If ROYALTIES FOR any calendar year do not equal or exceed the minimum royalties established in paragraph 3.3, LICENSEE shall include the balance of the minimum royalty with the PAYMENT for the half year ending December 31. All royalties due hereunder shall be PAYABLE in United States dollars and shall be made payable to President and Fellows of Harvard College. Conversion of foreign currency to U.S. dollars shall be made at the CONVERSION rate existing in the United States on the last business day in the reporting period as reported in the Wall Street Journal. All such reports shall be maintained in CONFIDENCE by HARVARD, except as required by law, including Public Law 96-517 and 98-620. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 7 8 4.4 If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, LICENSEE shall give HARVARD prompt notice in writing and shall pay the royalty and other amounts due through such means or methods as are lawful in such country as HARVARD may reasonably designate. Failing the designation by HARVARD of such lawful means or methods within thirty (30) days after such notice is given to HARVARD, LICENSEE shall deposit such royalty payment in local currency to the credit of HARVARD in a recognized banking institution designated by HARVARD, or if none is designated by HARVARD within the thirty (30) day period described above, in a recognized banking institution selected by LICENSEE and identified in a written notice to HARVARD by LICENSEE, and such deposit shall fulfill all obligations of LICENSEE to HARVARD with respect to such royalties. 4.5 Any tax required to be withheld by LICENSEE under the laws of any FOREIGN COUNTRY for the account of HARVARD, shall be promptly paid by LICENSEE for and on behalf of HARVARD to the appropriate governmental authority, and LICENSEE shall use its best efforts to furnish HARVARD with proof of payment of such tax. Payments to HARVARD shall be net of any such payments of taxes. ARTICLE V RECORD KEEPING 5.1 LICENSEE shall keep, and shall require its AFFILIATES AND SUBLICENSEES TO KEEP accurate and correct records of LICENSED PRODUCTS made, used or sold under this Agreement, appropriate to determine the AMOUNT OF ROYALTIES DUE HEREUNDER to HARVARD. Such records shall be retained for at least three (3) years following a given reporting period. They shall be available during normal business hours FOR INSPECTION at the expense of HARVARD by HARVARD's Internal Audit Department or by a Certified Public Accountant selected by HARVARD and approved by LICENSEE for the sole purpose of verifying reports and payments hereunder. Such accountant shall not disclose to HARVARD any information other than information relating to accuracy of reports and payments made under this Agreement. In THE EVENT THAT ANY SUCH INSPECTION shows an under reporting and underpayment in excess of five percent (5%) for any twelve (12) month period, then LICENSEE shall pay the cost of such EXAMINATION. 8 9 ARTICLE VI DOMESTIC AND FOREIGN PATENT FILING AND MAINTENANCE 6.1 LICENSEE shall reimburse HARVARD for all reasonable expenses HARVARD has incurred and shall incur for the preparation, filing, prosecution and maintenance of PATENT RIGHTS for which HARVARD has not been, and is not eligible to be reimbursed by any third party. HARVARD shall take responsibility for the preparation, filing, prosecution and maintenance of any and all patent applications and patents included in PATENT RIGHTS using patent counsel reasonably acceptable to LICENSEE, provided however that HARVARD shall first consult with LICENSEE as to the preparation, filing, prosecution and maintenance of such patent applications and patents and shall furnish to LICENSEE copies of documents relevant to any such preparation, filing, prosecution or maintenance. 6.2 HARVARD and LICENSEE shall cooperate fully in the preparation, filing, prosecution and maintenance of PATENT RIGHTS and of all patents and patent applications licensed to LICENSEE hereunder, executing all papers and instruments or requiring members of HARVARD to execute such papers and instruments so as to enable HARVARD to apply for, to prosecute and to maintain patent applications and patents in HARVARD's name in any country. Each party shall provide to the other prompt notice as to all matters which come to its attention and which may affect the preparation filing, prosecution or maintenance of any such patent applications or patents. 6.3 If LICENSEE elects not to pay the expenses OF A PATENT APPLICATION OR PATENT INCLUDED within PATENT RIGHTS in a particular country, LICENSEE shall notify HARVARD not less than sixty (60) days prior to such action and shall thereby surrender its rights under such patent or patent application in such country. 6.4 HARVARD agrees not to allow any PATENT RIGHT to become abandoned or to lapse without the written permission of LICENSEE. ARTICLE VII INFRINGEMENT 7.1 With respect to any PATENT RIGHTS under which LICENSEE is exclusively licensed pursuant to this Agreement, LICENSEE or its SUBLICENSEE shall have the right to prosecute in its own name and at its own expense any infringement of such patent, so long as such license is exclusive at the time of the commencement of such action. HARVARD agrees to notify LICENSEE promptly of each infringement of such patents of which HARVARD is or becomes aware. Before LICENSEE or its SUBLICENSEES 9 10 CONFIDENTIAL TREATMENT commences an action with respect to any infringement of such patents, LICENSEE shall give careful consideration to the views of HARVARD and to potential effects on the public interest in making its decision whether or not to sue and in the case of a SUBLICENSE, shall report such views to the SUBLICENSEE. 7.2 (a) If LICENSEE or its SUBLICENSEE elects to commence an action described above and HARVARD is a legally indispensable party to such action, HARVARD shall join the action as a co-plaintiff. Upon doing so, LICENSEE shall reimburse HARVARD for reasonable legal expenses and other out-of-pocket costs incurred by HARVARD for its participation in such action as a nominal plaintiff. (b) To the extent permitted by law, HARVARD shall have the right to intervene in any such action, and if HARVARD elects to do so, HARVARD shall jointly control such action with LICENSEE. 7.3 If LICENSEE or its SUBLICENSEE elects to commence an action as described above, LICENSEE may reduce, by [*], the royalty due to HARVARD EARNED UNDER THE patent subject to suit by the amount of the expenses and costs of such action, including reasonable attorney fees. In the event that such expenses and costs exceed the amount of royalties withheld by LICENSEE for any calendar YEAR, LICENSEE MAY TO THAT extent reduce the royalties due to HARVARD from LICENSEE in succeeding calendar years, but never by [*]. 7.4 Recoveries or reimbursements from such action shall first be APPLIED TO REIMBURSE LICENSEE and HARVARD for litigation costs not paid from royalties (if any) and then to reimburse HARVARD for royalties withheld. Any REMAINING RECOVERIES or reimbursements shall be distributed as follows: (i) If the amount is lost profits, LICENSEE shall RECEIVE AN AMOUNT EQUAL TO THE damages the court determines LICENSEE has suffered as a result OF THE INFRINGEMENT less the amount of any royalties that would have been due HARVARD ON SALES of LICENSED PRODUCTS lost by LICENSEE as a result of THE INFRINGEMENT HAD LICENSEE made such sales and HARVARD shall receive an amount equal to the royalties they would have received if such sales had been made by LICENSEE; OR (ii) As to awards other than lost profits, 80% to LICENSEE and 20% to HARVARD. 7.5 In the event that LICENSEE and its SUBLICENSEE, if any, elect not to exercise their right to prosecute an infringement of the PATENT RIGHTS pursuant to the above paragraphs, or does not do so within sixty (60) days after written NOTICE FROM HARVARD, HARVARD may do so at its own expense, controlling such action and retaining all recoveries therefrom, and LICENSEE shall cooperate with HARVARD with respect thereto. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 10 11 ARTICLE VIII TERMINATION OF AGREEMENT 8.1 This Agreement, unless extended or terminated as provided herein, shall remain in effect for the life of the last to expire of PATENT RIGHTS licensed hereunder, at which time LICENSEE shall have a fully paid up license. 8.2 In the event that one party to this Agreement shall be in default in the performance of any obligations under this Agreement, and if the default has not been remedied within ninety (90) days after the date of notice in writing of such default, the party giving such notice may terminate this Agreement by written notice. 8.3 In the event that LICENSEE shall cease to carry on its business, HARVARD SHALL HAVE the right to terminate this entire Agreement by giving LICENSEE written notice of such termination. 8.4 In the event that the licenses granted to LICENSEE under this Agreement are terminated, any granted sub-licenses shall remain in full force and effect as a direct license from HARVARD to the SUBLICENSEE, provided that the SUBLICENSEE is not then in breach of its sub-license agreement and the SUBLICENSEE agrees to be BOUND (as a licensee) to HARVARD (as a licensor) under the terms and conditions of THE SUB-LICENSE agreement. 8.5 LICENSEE shall have the right to terminate this Agreement or its LICENSE UNDER ANY PATENT RIGHT in any country by giving thirty (30) days advance written notice to HARVARD to that effect. Upon termination, a formal report shall be submitted and any royalty payments and unreimbursed patent expenses due to HARVARD become immediately payable. 8.6 Sections 8.4, 8.6, 9.2, 9.3 and 9.4 of this Agreement shall survive termination. 8.7 In the event that LICENSEE disputes the termination of this Agreement or any license granted hereunder and initiates legal proceedings in this respect, then this Agreement or any such license shall not be terminated until there is a final decision from WHICH no appeal has been or can be taken. ARTICLE IX GENERAL 9.1 HARVARD represents and warrants that the entire right, title, and interest in the patent applications or patents comprising the PATENT RIGHTS have been or will be assigned 11 12 to it and that HARVARD has the authority to issue the licenses under said PATENT RIGHTS set forth herein and that there are and will be no rights and/or licenses inconsistent with the rights and licenses granted to LICENSEE under this Agreement. HARVARD does not warrant the validity of the PATENT RIGHTS licensed hereunder and makes no representations whatsoever with regard to the scope of the licensed PATENT RIGHTS or that such PATENT RIGHTS may be exploited by LICENSEE, an AFFILIATE, or sublicensee without infringing other patents. 9.2 EXCEPT AS PROVIDED IN SECTION 9.1, HARVARD EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS OF THE TECHNOLOGY, LICENSED PROCESSES OR LICENSED PRODUCTS CONTEMPLATED BY THIS AGREEMENT. 9.3 (a) LICENSEE shall indemnify, defend and hold harmless HARVARD and its directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students, and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss or expenses (including REASONABLE attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, ACTIONS IN THE form of tort, warranty, or strict liability) concerning any product, process or service used or sold pursuant to any right or license granted UNDER THIS AGREEMENT. (b) LICENSEE'S indemnification under (a) above shall not apply to any liability, damage, loss or expense t the extent to apply to any liability, damage, loss OR EXPENSE to the extent that it is attributable to the negligent activities or willful misconduct of the Indemnitees. (c) HARVARD shall notify LICENSEE promptly of any claim OR THREATENED CLAIM under this Paragraph 9.3 and shall fully cooperate with all REASONABLE REQUESTS OF LICENSEE with respect thereto. (d) LICENSEE agrees, at its own expense, to provide attorneys reasonably acceptable to HARVARD to defend against any actions brought or filed against any party indemnified hereunder with respect to the indemnity contained HEREIN, WHETHER OR NOT such actions are rightfully brought and LICENSEE shall have the right to control the defense, settlement or compromise of any such claim or action. (e) At such time as any LICENSED PRODUCT is being commercially DISTRIBUTED or sold (other than for research purposes or for the purpose of obtaining regulatory approvals) by LICENSEE, or by an AFFILIATE, SUBLICENSEE or agent of LICENSEE (hereunder "Other Seller"), LICENSEE shall itself or in the ALTERNATIVE SHALL ensure that Other Seller either (i) at its sole cost and expense, procure(s) and maintain(s) 12 13 comprehensive general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds or (ii) pay(s) for the procurement and maintenance by HARVARD of insurance in the amounts and in the form set forth in this paragraph. Such comprehensive general liability insurance shall provide (i) product liability coverage and (ii) broad form contractual liability coverage for LICENSEE'S indemnification under Paragraph 9.3(a) of this Agreement. LICENSEE shall ensure that if LICENSEE or the Other Seller elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate) such self-insurance program must be acceptable to HARVARD and the Risk Management Foundation. The minimum amounts of insurance coverage required under this Paragraph 9.3(c) shall not be construed to create a limit of LICENSEE'S liability with respect to its indemnification under Paragraph 9.3(a) of this Agreement. At such time, or at any time, LICENSEE can request that HARVARD ascertain whether Risk Management Foundation has in effect Uniform Indemnification and Insurance Provisions more favorable than those of this Agreement, in which event LICENSEE and HARVARD shall amend this AGREEMENT TO include such more favorable provisions. (f) LICENSEE shall provide HARVARD with written evidence of such INSURANCE upon request of HARVARD. LICENSEE shall provide HARVARD with written notice of at least thirty (30) days prior to the cancellation, non-renewal or MATERIAL CHANGE IN such insurance; if LICENSEE does not obtain replacement insurance providing comparable coverage within such thirty (30) days period, HARVARD SHALL HAVE THE RIGHT to terminate this Agreement effective at the end of such thirty (30) day period by written notice to LICENSEE. (g) LICENSEE shall itself maintain, or shall ENSURE THAT OTHER SELLER MAINTAINS OR that payments are made for the maintenance by HARVARD of, as the case may be, such comprehensive general liability insurance beyond the expiration or termination of this Agreement during (i) the period that any LICENSED PRODUCT is being COMMERCIALLY distributed or sold (other than for research purposes or the purpose of obtaining regulatory approvals) by Other Seller and (ii) a reasonable period after period referred to in (g) (i) above which shall in no event be less than ten (10) years. The obligations of (g) (ii) above can be satisfied by the purchase of insurance by LICENSEE or a third party which covers claims resulting from occurrences during such period of (g)(ii) above for LICENSED PRODUCT commercially distributed or sold by LICENSEE or Other Seller during the period referred to in (g) (i) above. 9.4 LICENSEE shall not use HARVARD's name or any adaptation of it in any ADVERTISING, promotional or sales literature without the prior written assent of HARVARD. 9.5 Without the prior written approval of HARVARD, the entire license GRANTED PURSUANT to this Agreement shall not be transferred by LICENSEE to any party other than to a successor to the business interest of LICENSEE relating to the PATENT RIGHTS with 13 14 such transfer including but not being limited to mergers, consolidations, and transfer or sale of assets. This Agreement shall be binding upon the successors, legal representatives and assignees of HARVARD and LICENSEE. 9.6 The interpretation and application of the provisions of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts. 9.7 LICENSEE agrees to comply with all applicable laws and regulations. In particular, it is understood and acknowledged that the transfer of certain commodities and technical data is subject to United States laws and regulations controlling the export of such commodities and technical data, including all Export Administration Regulations of the United States Department of Commerce. These laws and regulations, among other things, prohibit or require a license for the export of certain types of technical data to certain specified countries. LICENSEE hereby agrees and gives written assurance that it will comply with all United States laws and regulations controlling the export of commodities and technical data, that it will be solely responsible for any violation of such by LICENSEE or its AFFILIATES or sublicensees, and that it will defend and hold HARVARD harmless in the event of any legal action of any nature occasioned by such violation. 9.8 Written notices required to be given under this Agreement shall be addressed as follows: If to HARVARD: Office of Technology and Trademark Licensing Harvard University 124 Mt. Auburn Street Suite 410 South Cambridge, MA 02138 CC: Office of Technology Licensing and Industry Sponsored Research Harvard Medical School 333 Longwood Ave. Boston, MA 02115 If to LICENSEE: Virus Research Institute 61 Moulton Street Cambridge, MA 02139 Attn: President or such other address as either party may request in writing. 14 15 9.9 Should a court of competent jurisdiction later consider any provision of this Agreement to be invalid, illegal, or unenforceable, it shall be considered severed from this Agreement. All other provisions, rights and obligations shall continue without regard to the severed provision, provided that the remaining provisions of this Agreement are in accordance with the intention of the parties. 9.10 Any matter under Section 2.3 of this Agreement which is to be resolved by arbitration shall be submitted to a mutually-selected single arbitrator to so decide any such matter or disagreement. The arbitrator shall conduct the arbitration in accordance with the then applicable Rules of the American Arbitration Association, unless the parties agree otherwise. If the parties are unable to mutually select an arbitrator, the arbitrator shall be selected in accordance with the procedures of the American Arbitration Association. The decision and award rendered by the arbitrator shall be final and binding. Judgment upon the award may be entered pursuant to this section and arbitration shall be held in Boston, MA, or such other place as may be mutually agreed upon in writing by the PARTIES. 9.11 This Agreement constitutes the entire understanding between the parties and neither party shall be obligated by any condition or representation other than those expressly stated herein or as may be subsequently agreed to by the parties hereto in writing. IN WITNESS WHEREOF, the parties hereto have caused this Agreement TO BE EXECUTED BY their duly authorized representatives. The effective date of this Agreement is March 28, 1997. PRESIDENT AND FELLOWS OF HARVARD COLLEGE By: /s/ JOYCE BRINTON ---------------------- Name and Title: Joyce Brinton, Director Virus Research Institute: By: /s/ WILLIAM A. PACKER ---------------------------- Name and Title: William A. Packer, President 15 16 CONFIDENTIAL TREATMENT Appendix A The following comprise PATENT RIGHTS: [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. EX-10.28 5 LICENSE AGREEMENT DATED MARCH 28, 1997 1 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. EXHIBIT 10.28 ---------------------------------------------- VIBRIOVEC LICENSE AGREEMENT ---------------------------------------------- This Agreement is entered as of this 1st day of December, 1997 (the "EFFECTIVE DATE") into BY AND AMONG: VIRUS RESEARCH INSTITUTE, INC., a company organized and existing under the laws of the State of Delaware, having its principal place of business at 61, Moulton Street, Cambridge, Massachusetts, USA, (hereinafter referred to as "VRI") AND MERIEUX ORAVAX S.N.C., a societe en nom collectif organized and existing under the laws of the Republic of France, registered at the Registre du Commerce et des Societes in Lyon under No. RCS Lyon B 404 337 172, with a capital of 52.000.000 French Francs, whose registered head-office is located at 58, avenue Leclerc, 69007 Lyon, France, ORAVAX MERIEUX CO., a general partnership organized and existing under the laws of the State of Massachussetts, having its principal place of business at 38, Sidney Street, Cambridge, Massachussetts, USA, (the parties numbered and above are individually and collectively hereinafter referred to as "LICENSEE" or "HPC") WITNESSETH WHEREAS, VRI has developed certain confidential and/or proprietary information, patents and patent applications and material relating to a vaccine delivery system that uses an attenuated form of Vibrio cholerae as a vector for the oral delivery of antigens ("VIBRIOVEC") which may present an interest in connection with vaccination against, and immunotherapy of, Helicobacter pylori infections; WHEREAS, HPC are joint venture entities created and equally owned and controlled by OraVax, Inc. of Cambridge, Massachussetts, USA, ("ORAVAX") and Pasteur Merieux Serums & Vaccins S.A. -a Pasteur Merieux Connaught company- of Lyon, France ("PMC") for the purpose of researching, developing, manufacturing and distributing products for active immunization against Helicobacter pylori infections and prevention, treatment and cure of associated diseases and conditions in humans; WHEREAS, HPC wishes to acquire from VRI certain licenses in order to have the right to use VibrioVec in connection with vaccines against Helicobacter pylori infections, and VRI is willing to grant such licenses to HPC, subject to the terms of and conditioned upon this Agreement; 1 2 NOW, THEREFORE, in consideration of the premises herein and for other good and valuable consideration, the Parties hereto, intending to be legally bound, agree as follows: ARTICLE 1 - DEFINITIONS AND INTERPRETATION 1.1. DEFINITIONS: For the purposes of this Agreement the following words and phrases shall have the following meanings: (a) "AFFILIATE" means, with respect to any Person, (i) any other Person of which the securities or other ownership interests representing fifty per cent (50 %) or more of the equity or fifty per cent (50%) or more of the ordinary voting power or fifty per cent (50%) or more of the general partnership interest are, at the time such determination is being made, owned, Controlled or held, directly or indirectly, by such Person (a "SUBSIDIARY"), or (ii) any other Person which, at the time such determination is being made, is Controlling, or under common Control with, such Person. As used herein, the term "Control", whether used as a noun or verb, refers to the possession, directly or indirectly, of the power to direct, or cause the direction of, the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For the avoidance of doubt, it is hereby recorded that, notwithstanding the definition contained in this Section 1.1.(a), the two HPC entities are Affiliates of both OraVax and PMC and of each other, and that OraVax and PMC are each Affiliates of the two HPC entities. (b) "AGREEMENT" means this agreement, all amendments and supplements to this Agreement and all schedules to this Agreement, including the following: SCHEDULE A - LICENSED PATENTS, SCHEDULE B - List of HPC Antigens. APPENDIX A - Terms and conditions applicable to research contract. APPENDIX B - Terms and conditions applicable to VECTOR supply. (c) "CALENDAR QUARTER" means any of the three-month periods beginning January 1, April 1, July 1 and October 1 in any year. (d) "VECTOR" means a vaccine delivery system that uses an attenuated form of the bacterium Vibrio cholerae as a vector for the oral delivery of antigens, known as VibrioVec; (e) "VECTOR IMPROVEMENTS" means all patentable or non-patentable inventions, discoveries, technology and information of any type whatsoever, which add to the knowledge of the VECTOR or its properties in general as a delivery system or an immunoadjuvant, as the case may be, for use in the Field of Use, including without limitation compositions, molecules derived from VECTOR, methods, processes, technical information, knowledge, experience and know-how. (f) "CONFIDENTIAL INFORMATION" has the meaning ascribed to it in Section 8.1. of this Agreement. 2 3 (g) "EVENT OF FORCE MAJEURE" has the meaning ascribed to it in Article 12 of this Agreement. (h) "FIELD OF USE" means the use of VRI Technology for the formulation of products for active immunization against Helicobacter pylori infections in humans and, by such immunization, the prevention, treatment and cure of associated diseases and conditions. (i) "FIRST COMMERCIAL SALE" means, in each country of the Territory, the first sale of a PRODUCT in commercial quantities by LICENSEE, its Affiliates or Sublicensees, to Third-Parties, in each case for use or consumption of such PRODUCT in such country by the general public. (ii) "JOINT INVENTIONS" has the meaning ascribed to it in Section 9.1 hereof. (j) "LICENSE" has the meaning ascribed to it in Section 2.1.1. of this Agreement. (k) "LICENSED KNOW-HOW" means any and all technical information, discoveries, improvements, processes, formulae, data, engineering, technical and shop drawings, inventions, Materials, shop-rights, know-how and trade secrets, in each case which is Confidential Information at the time of disclosure according to Article 8, is identified in accordance with Section 2.3.3. of this Agreement as related to VECTOR and which is useful or necessary to make, have made, use or sell PRODUCTS or to practice under the LICENSED PATENTS in the Field of Use, which have been, or hereafter are, either developed by VRI or its Affiliates, or the rights to which in the Field of Use have been acquired by VRI or its Affiliates and to which VRI or its Affiliates have a transferable interest. Without prejudice to the generality of the foregoing, LICENSED KNOW-HOW shall include, with respect to VECTOR, chemical and analytical methods and data, VECTOR specifications, and pharmacological and toxicological methods and data. (l) "LICENSED PATENTS" means: (i) any existing patents and patent applications listed in SCHEDULE A to this Agreement; (ii) any future patents issued from any patent applications referred to in Paragraph 1.1.(l).(i) above and any future patents issued from a patent application filed in any country in the Territory which corresponds to a patent or patent application identified in Paragraph 1.1.(l).(i) above; (iii) any reissues, confirmations, renewals, extensions, counterparts, divisions or continuations issued, assigned or licensed to VRI or its Affiliates of or relating to the patents or patent applications identified in Paragraph 1.1.(l).(i) and (ii) above; (iv) any future patents and patent applications covering VRI VECTOR Improvements solely or jointly owned or licensed by VRI or its Affiliates with the right to sublicense. (m) "LICENSEE VECTOR IMPROVEMENTS" means VECTOR Improvements which are conceived, developed or reduced to practice during the term of this Agreement solely or jointly by employees or contractors acting on behalf of LICENSEE, its Affiliates or Sublicensees, to the extent and only to the extent that LICENSEE now has or hereafter shall have the right to grant licenses, 3 4 immunities or other rights thereon. For avoidance of doubt, any technology developed by LICENSEE during the term and pursuant to this Agreement which relates to any HPC Antigen or Other Hp Antigen (rather than antigens in general), or to the combination of such specific antigen with VECTOR, or to the manufacturing of PRODUCTS shall not be included in LICENSEE VECTOR Improvements. LICENSEE VECTOR Improvements shall be deemed to include LICENSEE's interest in any Joint Inventions. (mm) "LPS" means Helicobacter pylori antigens which are lipopolysaccharides. (n) "MANUFACTURING KNOW-HOW" means any and all technical information, discoveries, improvements, processes, formulae, data, engineering, technical and shop drawings, inventions, shop-rights, know-how and trade secrets, in each case which is Confidential Information at the time of disclosure in the meaning of Article 8 hereof, is identified in accordance with Section 2.3.3., which is owned or otherwise possessed by VRI or VRI's Affiliates and to which VRI or its Affiliates have a transferable interest, and which is useful or necessary to make and have made VECTOR or to use VECTOR for the formulation of PRODUCTS or to practice under the LICENSED PATENTS to the extent such Patents relates to the manufacturing of VECTOR ; in particular, but without limiting the generality of the foregoing, Manufacturing Know-How shall include any and all information regarding the synthesis, manufacture, up-scaling and handling of VECTOR, any and all analytical procedures, procedures for and specifications of quality-assurance and quality-control. (o) "MATERIALS" shall mean any biological materials and chemical VECTOR including but not limited to structural genes, genetic sequences, promoters, enhancers, probes, linkage probes, vectors, hosts, plasmids, peptides, polypeptides, transformed cell lines, transgenic animals, proteins, biological modifiers, antigens, reagents, hybridomas, antibodies, toxins, lectins, enzymes, lipids, hormones, viruses, cells or parts of cells, cell lines, fragments of any of the foregoing and any other biologically active material or VECTOR, whether or not occurring naturally or howsoever derived, modified, conjugated, cross-linked, immobilized, reduced, purified or produced, whether by recombinant DNA techniques and/or otherwise. (p) "NET SALES" shall mean gross sales of PRODUCTS sold by LICENSEE, its Affiliates and Sublicensees to Third-Parties (including unaffiliated Third-Party distributors, except in the circumstances referred to in Section 6.3 hereof, and provided further that where a distributor is an Affiliate, but neither a Subsidiary of LICENSEE nor a Subsidiary of OraVax or PMC (other than HPC), such distributor shall be deemed a Third-Party for the purpose of calculating Net Sales hereunder) less, to the extent actually incurred or allowed: (i) customary trade discounts, credits, rebates, returns (including, but not limited to, wholesaler and retailer returns); (ii) excise taxes, other consumption taxes, customs duties and compulsory payments made to governmental authorities; (iii) transportation, transit and insurance for transportation each to the extent separately invoiced and paid by LICENSEE. (q) "NOTICE OF DISPUTE" has the meaning ascribed to it in Section 17.4.(a) of this Agreement. 4 5 (r) "OTHER HP ANTIGENS" means any antigens of Helicobacter pylori and genes encoding such antigens other than HPC Antigens and LPS. (s) "PARTIES" means LICENSEE and VRI, and "Party" means any one of them. (t) "PERSON" means an individual, corporation, partnership, trust, business trust, association, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. (u) "PHASE III" means the first large scale safety and efficacy clinical trial relating to a PRODUCT. (v) "PLA" means a product license application filed with the European Medicines Evaluation Agency or its successor in the European Union, or any analogous or corresponding application filed with the governing health authority of any country or region (such as the Food and Drug Administration in the United States of America or the Agence du Medicament in France), for approval to market any PRODUCT for use or consumption in such country or region. (vv) "HPC ANTIGENS" means antigens of Helicobacter pylori (other than LPS), and genes encoding such antigens, which are listed in SCHEDULE B as being included in LICENSEE's research & development program, which list may be amended from time to time by written notice by LICENSEE to VRI (i) to add antigens which are included in LICENSEE's research & development program, in which case such antigens shall then become HPC Antigens and be treated as such for the purpose of this Agreement, PROVIDED, HOWEVER, that VRI has not previously granted a non-exclusive license to a Third-Party with respect to the use of VECTOR in combination with such antigens, or (ii) to delete antigens which are excluded from such program, in which case such antigens shall become Other Hp Antigens and be treated as such for the purpose of this Agreement; (w) "PRODUCTS" means any and all vaccines for active immunization intended for use in the Field of Use which contain HPC Antigens (either alone, combined with each other or combined with Other Hp Antigens) or Other Hp Antigens (either alone or combined with each other), in each case formulated in combination with VECTOR. (ww) "RESEARCH INVENTIONS" has the meaning ascribed to it in Section 9.1 hereof which refers to Section 9 of APPENDIX A to this Agreement. (x) "ROYALTY TERM" means, with respect to each PRODUCT in each country in the Territory, the period of time equal to the longer of (a) ten (10) years from the date of First Commercial Sale of such PRODUCT in such country or (b) the term for which a Valid Patent Claim in such country remains in effect and, but for a license granted by this Agreement, would be infringed by the manufacture, use or sale of such PRODUCT in the Field of Use in such country. (xx) "SUBLICENSEE" means any Person acting pursuant to a sublicense granted to it by LICENSEE under the terms of this Agreement. (xxx) "TERRITORY" means all countries in the world. (y) "THIRD-PARTY" means any Person other than LICENSEE, VRI and their respective Affiliates. 5 6 (yy) "VALID PATENT CLAIM" means a claim of an issued and unexpired patent or patent application included in LICENSED PATENTS which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. (z) "VRI VECTOR IMPROVEMENTS" means VECTOR Improvements which are conceived, developed or reduced to practice during the term of this Agreement solely or jointly by employees or contractors acting on behalf of VRI or its Affiliates, to the extent that VRI has now or hereafter shall have the right to grant licenses, immunities or other rights thereon. VRI VECTOR Improvements shall be deemed to include VRI's interest in any Joint Inventions. (zz) "VRI TECHNOLOGY" means the LICENSED PATENTS, the VECTOR, the Manufacturing Know-How, the LICENSED KNOW-HOW and the VRI VECTOR Improvements. ARTICLE 2 - LICENSES 2.1. GRANT OF LICENSES TO LICENSEE 2.1.1. GRANT: Subject to and conditioned upon the provisions of this Agreement, VRI hereby grants to LICENSEE, and LICENSEE hereby accepts, the following licenses (collectively, the "LICENSE"): (i) a license in the Territory to make, have made, use and sell PRODUCTS under the LICENSED PATENTS and by using LICENSED KNOW-HOW and VRI VECTOR Improvements; and (ii) a license in the Territory to make, have made and use the VECTOR under the LICENSED PATENTS, and by using the Manufacturing Know-How and VRI VECTOR Improvements, in each case solely for the purpose of formulating PRODUCTS in the Field of Use. 2.1.2. EXCLUSIVITY (i) HPC ANTIGENS. Subject to and conditioned upon the provisions of this Agreement, the LICENSE granted pursuant to this Article II shall be exclusive (exclusive even as to VRI) to LICENSEE in the Field of Use with respect to PRODUCTS combining any VECTOR with any HPC Antigens (either alone, combined with each other or combined with Other Hp Antigens). Without limiting the generality of the foregoing, VRI covenants that during the term of this Agreement, neither VRI nor its Affiliates shall grant to any other Person any right, license or privilege to make, have made, use or sell PRODUCTS containing HPC Antigens (alone, or in combination with each other, or in combination with Other Hp Antigens), or to make, have made or use VECTOR, 6 7 or to otherwise use or exploit VRI Technology, in connection with such PRODUCTS containing HPC Antigens (alone, or in combination with each other, or in combination with Other Hp Antigens). (ii) OTHER HP ANTIGENS. Subject to and conditioned upon the provisions of this Agreement, the LICENSE granted pursuant to this Article II shall be non-exclusive to LICENSEE in the Field of Use with respect to PRODUCTS combining any VECTOR with any Other Hp Antigens (alone or combined with each other), but only with such Other Hp Antigens. Such license shall be non-transferable and non-sub-licensable. (iii) For greater certainty, VRI has and retains all rights in and to the VRI Technology outside the Field of Use and LICENSEE has no rights in the VRI Technology outside the Field of Use. Further, the LICENSE shall not apply to nor cover any combination of an Helicobacter pylori vaccine with any other vaccine, or any Helicobacter pylori vaccine containing LPS. 2.1.3. LICENSEE'S RIGHTS TO SUBLICENSE (i) LICENSEE shall have the right, with VRI's prior written consent (which consent shall not be unreasonably withheld), to sublicense in the Field of Use to Third-Parties all or any portion of the rights to LICENSED PATENTS and LICENSED KNOW-HOW and VRI VECTOR Improvements granted to it pursuant to this Agreement under the exclusive LICENSE. (ii) LICENSEE shall have the right, without obtaining the further consent of VRI, to sublicense in the Field of Use all or any portion of the rights to the LICENSED PATENTS, the LICENSED KNOW-HOW, VRI VECTOR Improvements and/or the Manufacturing Know-How granted to it pursuant to this Agreement under both the exclusive and the non-exclusive LICENSE (i) to any or all of its Affiliates, and (ii) to any Person in any country of the Territory if required to do so by any governmental authority having jurisdiction in such country. (iii) LICENSEE agrees that all sublicenses granted by LICENSEE hereunder shall expressly bind Sublicensees to the terms of Article 8, "Confidentiality" and to all other relevant provisions of this Agreement. In the event LICENSEE grants sublicenses, LICENSEE shall pay royalties to VRI as if Net Sales of the Sublicensees were Net Sales of LICENSEE and VRI shall be expressly made a third-party beneficiary thereof. LICENSEE shall be responsible for the performance by any Sub-licensee of all such terms, conditions and obligations. (iv) Any sublicenses granted by LICENSEE shall include a requirement that the Sublicensee maintains records and permits inspection on terms essentially identical to Section 5.2 hereof. At VRI's request, LICENSEE shall arrange for an independent certified public accountant selected by VRI to inspect the records of Sublicensees, at VRI's expense, for the purpose of verifying royalties due to VRI and shall cause such accountant to report the results thereof to VRI. (v) Any sublicenses granted by LICENSEE shall provide for the termination of the sublicense, or, if the Sublicensee is a Third-Party, at the option of such Sublicensee, the conversion to a license directly between such Sublicensee and VRI, upon termination of this Agreement under Article 10 (other than expiration under Section 10.1). Such conversion shall be subject to VRI's 7 8 approval and contingent upon acceptance by the Sublicensee of the remaining provisions of this Agreement. (vi) LICENSEE shall notify VRI of each sublicense granted to Third-Parties and shall provide VRI with the name and address of each Sublicensee and a description of the PRODUCTS and territory covered by each sublicenses. 2.1.4. SUBLICENSES TO LICENSEE. To the extent LICENSED PATENTS have been, or shall be, licensed by VRI from a Third-Party under an agreement with such Third-Party (a "Third-Party In-license"), HPC understands and agrees as follows: (i)- The rights sub-licensed to HPC by VRI are subject to the terms and conditions, restrictions, limitations and obligations of the relevant Third-Party In-license; (ii)- HPC shall comply with the terms and conditions, restrictions, limitations and obligations of such Third-Party In-license(s) to the extent HPC has been permitted to review such terms, conditions, restrictions, limitations and obligations. VRI shall give HPC, upon request, a reasonable opportunity to review the same except to the extent that confidentiality obligations towards Third-Parties may prevent VRI from doing so. In any event, VRI shall act reasonably in advising HPC of the scope of HPC's obligations pursuant to any relevant Third-Party In-license. 2.1.5 SUBCONTRACTING. Notwithstanding anything herein provided for to the contrary, LICENSEE shall be allowed to (i) sub-contract in whole or in part PRODUCTS development to Third-Parties such as, without limitation, clinical research organizations, (ii) appoint sales agents and distributors to promote, market and distribute PRODUCTS and (iii) sub-contract manufacturing of PRODUCTS and/or VECTOR with Affiliates, Third-Parties or with VRI, or VRI's Affiliates. 2.2. LICENSES TO VRI. Subject to and conditional upon the provisions of this Agreement, LICENSEE shall grant to VRI a non-exclusive, sublicenseable, royalty-free, worldwide license to LICENSEE VECTOR Improvements for commercial use outside the Field of Use. 2.3. PROCEDURES FOR PROVISION OF KNOW-HOW. 2.3.1. DISCLOSURE OF TECHNOLOGY. (a) BY VRI. From time to time during the term of this Agreement, VRI shall disclose or cause its Affiliates to disclose to LICENSEE such VRI Technology as reasonably necessary to enable LICENSEE to develop, manufacture and commercialize PRODUCTS and to manufacture, have manufactured or use VECTOR for the formulation of PRODUCTS in the Field of Use on the terms 8 9 and subject to the conditions of this Agreement. In addition, during the term of this Agreement, VRI shall, upon LICENSEE's reasonable request and with adequate notice to VRI, make available to LICENSEE at LICENSEE's or its Affiliates' manufacturing facilities or the facility of a Third-Party manufacturer who shall have contracted with LICENSEE to manufacture PRODUCTS or VECTOR, VRI's or VRI Affiliate's personnel to provide technical assistance to LICENSEE's personnel, or LICENSEE Affiliates' personnel or Third-Party manufacturer's personnel. LICENSEE shall pay or have paid by its concerned Affiliates all expenses incurred by VRI or its Affiliates in connection with such technical assistance. The technical assistance to be rendered by VRI and its Affiliates hereunder may include, upon reasonable request by LICENSEE, demonstration of Manufacturing Know-How at a VRI's or a VRI Affiliate's facility and disclosure of any and all sources of raw material and list and specifications of equipment and machinery used in the production of VECTOR according to the Manufacturing Know-How. (b) BY LICENSEE. From time to time during the term of this Agreement, LICENSEE shall disclose to VRI all LICENSEE VECTOR Improvements on the terms and subject to the conditions of the Agreement and in particular in accordance with Section 2.2. hereof. 2.3.2. COMMUNICATION AMONG PARTIES. Each of LICENSEE and VRI shall appoint (a) specific individual(s) who shall be available and shall act as (a) liaison person(s) to facilitate the day-to-day communications among the Parties. The names and addresses of the liaison persons who shall act on behalf of each of the Parties shall be provided by each of the Parties to the other immediately following the execution of this Agreement. Each of LICENSEE and VRI agrees to notify the other in accordance with the terms of Section 17.1. of this Agreement in the event of a change in liaison person. 2.3.3. IDENTIFICATION OF KNOW-HOW. The Parties agree that all information, VECTORS and Materials comprised in the Licensed Know-How to be transferred to LICENSEE pursuant to this Agreement shall be so transferred in the case of written information, by memoranda bearing the mention "Confidential", and, in the case of Materials, by clearly marked and numbered containers. LICENSEE shall designate an individual who shall be responsible for receiving information and Materials from VRI and/or its Affiliates and the Parties agree that such information and Materials shall in all cases (except where the Parties agree otherwise) be sent solely to the attention of such individual. Upon receipt of information and/or Materials, the designated individual shall, on behalf of LICENSEE, send an acknowledgement to VRI and/or its Affiliates confirming receipt of information and/or Materials. The Parties agree that they shall in good faith work together to establish and maintain a system to record the transmission of information and/or Materials under this Agreement and make all commercially reasonable efforts to ensure such system is followed. 2.3.4. CONFIDENTIALITY. 9 10 All information transferred pursuant to this Agreement shall be deemed to be "Confidential Information" in accordance with Section 8.1. 2.3.5. SUPPLY OF VECTOR. VRI hereby represents and warrants that any and all quantities of VECTOR which may be supplied hereunder by VRI or its Affiliates to LICENSEE for use in clinical trials in humans shall be manufactured in accordance with current Good Manufacturing Practices (cGMP) as in force in the country where such VECTOR shall be manufactured and shall meet VECTOR specifications as shall be agreed otherwise by the Parties. The sole and exclusive remedy for LICENSEE under this paragraph shall be for VRI to provide replacement VECTOR complying with agreed-upon specifications, free of any charge, in quantity equal to LICENSEE's original order, except where VRI liability is established to be gross negligence or willful misconduct (and LICENSEE did not use VECTOR with knowledge of the non-compliance hereunder), in which case VRI shall indemnify LICENSEE as provided herein. ARTICLE 3 - DEVELOPMENT AND COMMERCIALIZATION. 3.1. DEVELOPMENT AND COMMERCIALIZATION EFFORTS. LICENSEE (i) shall use commercially reasonable efforts to diligently conduct such preclinical and clinical trials that are necessary or desirable to obtain all regulatory approvals to develop and commercialize such PRODUCTS, (ii) shall diligently develop and obtain necessary approval to market such PRODUCTS (including, as the case may be, pricing approval), and (iii) shall commence marketing and market such PRODUCTS in each country in which LICENSEE has received all applicable regulatory approvals therefor. LICENSEE shall comply with all applicable good laboratory, clinical and manufacturing practices in the development and commercialization of such PRODUCTS, and shall cause its Affiliates and subcontractors to do the same. LICENSEE shall be solely responsible for funding all costs of the development and commercialization of each such PRODUCTS. 3.2. SUB-CONTRACTS TO VRI. LICENSEE and VRI have agreed to have part of the research and development work with respect to PRODUCTS sub-contracted to VRI pursuant to and in accordance with the terms and conditions set forth in APPENDIX A. LICENSEE and VRI may agree to have VECTOR manufacturing sub-contracted to VRI, in which case such contract manufacturing shall be subject to terms and conditions set forth in APPENDIX B. 3.3. DEVELOPMENT AND COMMERCIALIZATION REPORTS. During the term of this Agreement, LICENSEE shall keep VRI reasonably informed as to the progress of the development of PRODUCTS by notifying VRI of completion of each significant step. In addition, LICENSEE agrees to update the list of HPC Antigens which constitute the Schedule B to this Agreement, on a quarterly basis, by indicating in writing 10 11 CONFIDENTIAL TREATMENT which Other Hp Antigens, if any, are included in such list and which HPC Antigens, if any, are excluded therefrom and then become Other Hp Antigens. All information disclosed by LICENSEE pursuant to this Section 3.3 shall be subject to Article 8 hereof. ARTICLE 4 - ROYALTIES AND MILESTONES. 4.1. EARNED ROYALTIES. During the Royalty Term, LICENSEE shall pay to VRI a royalty of [*]. 4.2. THIRD-PARTY ROYALTIES. If LICENSEE, its Affiliates or Sublicensees is required to pay royalties to any Third-Party in order to make, have made, use or sell a PRODUCT in a country or to make, have made or use VECTOR for use in such PRODUCT in such country, then the royalty set-forth in Section 4.1 hereof for such PRODUCT in such country shall be reduced by [*]. 4.3. SINGLE ROYALTY: NON-ROYALTY SALES. In no event shall more than one royalty be payable under Section 4.1. hereof with respect to a particular unit of PRODUCTS. No royalty shall be payable under this Article 4 with respect to sales of PRODUCTS among LICENSEE and its Affiliates (provided that where a distributor is an Affiliate, but neither a Subsidiary of LICENSEE nor a Subsidiary of OraVax or PMC -other than HPC-, such distributor shall be deemed a Third-Party), or among Sublicensees and their Affiliates, or among LICENSEE and its Affiliates, but a royalty shall be due upon the subsequent sale of the PRODUCTS to a Third-Party. No royalty shall be payable for (i) PRODUCTS used by LICENSEE, its Affiliates or Sublicensees, for research including, without limitation, in clinical trials, or (ii) customary quantities of PRODUCTS distributed as free samples. 4.4. MILESTONE PAYMENTS. As additional consideration for the LICENSE, rights and privileges granted to it hereunder, LICENSEE shall pay to VRI the following milestone payments within thirty (30) days of the occurrence of each event set forth below (unless otherwise specified below), whether such events are achieved by LICENSEE, its Affiliates or Sublicensees: (a) [*]; /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 11 12 CONFIDENTIAL TREATMENT (b) [*]; (d) [*]; (e) [*]; (f) [*]. The above-mentioned milestone payments shall be payable only once each. ARTICLE 5 - ROYALTY REPORTS AND ACCOUNTING. 5.1. REPORTS, EXCHANGE RATES. During the term of this Agreement following the First Commercial Sale, LICENSEE shall furnish to VRI, with respect to each Calendar Quarter, a written report showing in reasonably specific detail, on a country-by-country basis, (a) the gross sales of PRODUCTS sold by LICENSEE, its Subsidiaries and its Sublicensees in the Territory during the corresponding Calendar Quarter and the calculation of Net Sales from such gross sales; (b) the royalties payable in United States dollars, if any, which shall have accrued hereunder based upon Net Sales of PRODUCTS; (c) the withholding taxes, if any, required by law to be deducted in respect of such royalties; (d) the date of the First Commercial Sale of PRODUCTS having occurred in each country in the Territory during the corresponding Calendar Quarter; and (e) the exchange rates used in determining the royalty amount expressed in United States dollars. With respect to sales (if any) of PRODUCTS invoiced in United States dollars, the gross sales, Net Sales, and royalties payable shall be expressed in United Sates dollars. With respect to sales of PRODUCTS invoiced in a currency other than United Sates dollars, the gross sales, Net Sales and royalties payable shall be expressed in the currency of the invoice issued by the Party making the sale together with the United States dollars equivalent of the royalty payable, calculated using the rate of exchange published in the WALL STREET JOURNAL for such currency on the last business day of the concerned Calendar Quarter. Reports and payments shall be due on the forty fifth (45th) day following the close of each Calendar Quarter. LICENSEE shall keep complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 12 13 5.2. AUDITS. 5.2.1. Upon the written request of VRI and not more than once in each calendar year, LICENSEE shall permit an independent certified public accounting firm of internationally recognized standing, selected by VRI and reasonably acceptable to LICENSEE, at VRI's expense, to have access during normal business hours to such of the records of LICENSEE as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than three (3) years prior to the date of such request. The accounting firm shall disclose to VRI only whether the records are correct or not and the specific details concerning any discrepancies. No other information shall be shared. 5.2.2. If such accounting firm concludes that additional royalties were owed during such period, LICENSEE shall pay the additional royalties within thirty (30) days of the date VRI delivers to LICENSEE such accounting firm's written report so concluding. The fees charged by such accounting firm shall be paid by VRI; PROVIDED, HOWEVER, if the audit discloses that the royalties payable by LICENSEE for the audited period are more than one hundred and two percent (102%) of the royalties actually paid for such period, then LICENSEE shall pay the reasonable fees and expenses charged by such accounting firm. 5.2.3. LICENSEE shall include in each permitted sublicense granted by it pursuant to the Agreement a provision requiring the Sublicensee to make reports to LICENSEE, to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by VRI's independent accountant to the same extent required with respect to LICENSEE's records under this Agreement. 5.2.4. Except in the case of circumstances which would have prevented an error or anomaly from being disclosed during the audit hereabove mentioned, such as fraud or other failure to provide accurate information, upon the expiration of three (3) years following the end of any calendar year, the calculation of royalties payable with respect to such year shall be binding and conclusive upon VRI, and LICENSEE, its Affiliates and Sublicensees shall be released from any liability or accountability with respect to royalties for such year. 5.3. CONFIDENTIAL FINANCIAL INFORMATION. VRI shall treat all financial information subject to review under this Article 5 or under any sublicense as confidential, and shall cause its accounting firm to retain all such financial information in confidence. ARTICLE 6 - PAYMENTS. 6.1. PAYMENT TERMS. 13 14 CONFIDENTIAL TREATMENT Royalties shown to have accrued by each royalty report provided for under Article 5 of this Agreement shall be due on the date such royalty report is due. Payment of royalties in whole or in part may be made in advance of such due date. 6.2. PAYMENT METHOD. Except as provided in this Section 6.2., all payments by LICENSEE to VRI under this Agreement shall be paid in United States dollars, and all such payments shall be made without deduction of bank transfer fees by bank wire transfer in immediately available funds to the following bank account: - ------------------------------------------------------ Bank : [*] Account No. : [*] Account name : [*] - ------------------------------------------------------ or to any other bank account designated in writing from time to time by VRI to LICENSEE. 6.3. EXCHANGE CONTROL. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country in the Territory where PRODUCTS are sold, payment shall be made through such lawful means or method as the Parties reasonably shall determine or, at VRI's discretion, royalties shall be based on HPC sales (if any) to HPC's Subsidiary or Sublicensee in such country. 6.4. WITHHOLDING TAXES. Royalties and milestone payments shall be paid by LICENSEE to VRI, after deduction of any applicable withholding taxes. Prior to any payment by LICENSEE to VRI, LICENSEE shall provide to VRI any forms required to attest VRI's fiscal domiciliation in order to allow LICENSEE to claim application of the reduced rate of withholding tax provided for in any applicable bilateral fiscal convention. VRI shall promptly return such forms to LICENSEE. In the event VRI fails to promptly return such forms duly filled and signed, LICENSEE shall declare and pay withholding tax at the common law rate of the applicable corporate income tax, and such tax shall then be deducted from the corresponding payment by LICENSEE to VRI. LICENSEE shall pay withholding tax to the proper taxing authority and proof of payment of such tax shall be secured and sent to VRI as evidence of such payment. ARTICLE 7 - INFRINGEMENT ACTIONS BY THIRD-PARTIES. If LICENSEE, VRI or their respective Affiliates, or LICENSEE's Sublicensees, is sued by a Third-Party for infringement of a Third-Party's patent because of the manufacture, use or sale of PRODUCTS or manufacture or use of VECTOR, the Party which has been sued shall promptly notify the other Party in writing of the institution of such suit, in which event the other Party shall have the right to be represented by advisory counsel of its own selection, at its own expense, and shall cooperate fully in the defense of such suit and furnish to the Party(ies) that is(are) sued all evidences and assistance in its control. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 14 15 The Party controlling the suit may not settle the suit or otherwise consent to an adverse judgment in such suit that diminishes the rights or interests of the non-controlling Party without the express written consent of the non-controlling Party. Any judgments, awards, settlements or damages payable with respect to legal proceedings covered by this Article 7 shall be paid by the Party against whom the award has been made. ARTICLE 8 - CONFIDENTIALITY. 8.1. NON-DISCLOSURE AND RESTRICTION-OF-USE OBLIGATIONS. Except as otherwise provided in this Article 8, during the term of this Agreement and for a period of ten (10) years after termination of this Agreement under Sections 10.3. or 10.4., each Party shall maintain in confidence, and use only for purposes as expressly authorized and contemplated by this Agreement, all information and data supplied by the other Party under this Agreement, including but not limited to LICENSED KNOW-HOW, Manufacturing Know-How and VECTOR Improvements. For purposes of this Article 8, information and data described above shall be hereinafter referred to as "CONFIDENTIAL INFORMATION". 8.2. PERMITTED DISCLOSURES. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, (i) a Party may disclose Confidential Information it is otherwise obligated under this Article 8 not to disclose, to its Affiliates, Sublicensees, consultants, outside contractors and clinical investigators, on a need-to-know basis, provided that such Persons agree to keep the Confidential Information confidential and not use the Information for the same time period and to the same extent as such Party is required; and (ii) a Party may disclose such Confidential Information to governmental or other regulatory authorities to the extent that such disclosure is required by applicable law, regulation or court order, or is reasonably necessary to obtain patents, copyrights or authorizations to conduct clinical trials with, or to commercially market PRODUCTS, provided that the disclosing Party shall provide written notice to the other Party and sufficient opportunity to object to such disclosure or to request confidential treatment thereof. The obligation not to disclose or use Confidential Information shall not apply to any part of such Information (including LICENSED KNOW-HOW, Manufacturing Know-How and VECTOR Improvements) that (i) is or becomes patented, published or otherwise part of the public domain or publicly available other than by acts of the Party obligated not to disclose such Information, or of its Affiliates or Sublicensees, in contravention of this Agreement; (ii) is disclosed to the receiving Party or its Affiliates or Sublicensees by a Third Party, provided such Information was not obtained by such Third-Party directly or indirectly from the other Party, its Affiliates or Sublicensees, under or pursuant to this Agrement on a confidential basis and otherwise had a lawful right to disclose the information; (iii) prior to disclosure under 15 16 the Agreement, was already in the possession of the receiving Party or its Affiliates or Sublicensees, provided such Information was not obtained directly or indirectly from the other Party under this Agreement; (iv) is independently developed by the receiving Party without reliance on the Confidential Information disclosed by the other Party hereunder, (v) is disclosed in a press release agreed to by both Parties hereto in accordance with Section 8.4. hereinafter or (vi) both Parties have agreed to publish. 8.3. TERMS OF THE AGREEMENT. LICENSEE and VRI shall not disclose any terms or conditions of this Agreement to any Third-Party without the prior consent of the other Party, except (a) to Persons with whom LICENSEE or VRI has entered into or proposes to enter into a business relationship to which this Agreement is relevant and substantial, provided that such Persons shall enter into the required confidentiality agreement, or (b) as required by applicable laws, regulations or a court order, provided that the disclosing Party shall provide written notice to the other Party and sufficient opportunity to object to such disclosure or to request confidential treatment thereof. 8.4. PRESS RELEASES AND OTHER DISCLOSURES TO THIRD-PARTIES Neither VRI nor HPC shall, without the prior written consent of the other, issue any press release or make any other public announcement or furnish any statement to any Person (other than either Parties' respective Affiliates) concerning the existence of this Agreement and the transactions contemplated by this Agreement, except for (i) general statement referring to the existence of this Agreement, specifying the Field of Use and identity of the Parties but no other details, (ii) disclosures made in compliance with sections 8.2. and 8.3. hereof, (iii) attorneys, consultants, and accountants retained to represent them in connection with the transactions contemplated hereby or as may be reasonably necessary to either Party's bankers, investors, attorneys or other professional advisors in connection with a merger or acquisition, provided such advisors are bound by confidentiality obligations essentially identical to those provided for herein, and (iv) occasional, brief comments by the respective officers of HPC, OraVax, PMC and VRI consistent with such guidelines for public statements as may be mutually agreed by HPC and VRI made in connection with routine interviews with analysts or members of the financial press. In addition, either Party (after consultation with counsel) in its own right may make such further announcements and disclosures, if any, as may be required by applicable laws and regulations, in which case the Party making the announcement or disclosure shall use its best efforts to give advance notice to, and discuss such announcement or disclosure with, the other Party. 8.5. Notwihstanding anything else to the contrary, LICENSEE agrees that VRI Technology shall be used only for the research, development, manufacture, use and sale of PRODUCTS and that in the event that the LICENSE is terminated, LICENSEE agrees not to use VRI Technology and LICENSEE VECTOR Improvements for the research, development, manufacture, use or sale of any product or process including but not limited to PRODUCTS. 16 17 ARTICLE 9 - INVENTIONS AND PATENTS. 9.1. OWNERSHIP OF INVENTIONS. The entire right and title to technology, whether or not patentable, and any patent applications or patents based thereon, made or conceived during the term of this Agreement (other than Research Inventions as defined in APPENDIX A attached hereto, if any), (a) by employees or others acting solely on behalf of VRI or its Affiliates, shall be owned solely by VRI, (b) by employees or others acting solely on behalf of LICENSEE or its Affiliates, shall be owned solely by LICENSEE, and (c) by both employees or others acting on behalf of LICENSEE or its Affiliates and on behalf of VRI or its Affiliates shall be jointly owned by LICENSEE and VRI (the "JOINT INVENTIONS"). Each Party promptly shall disclose to the other Party the making, conception or reduction to practice of VECTOR Improvements by employees or others acting on behalf of such Party. VRI and LICENSEE each hereby represents that all employees and other Persons acting on its behalf in performing its obligations under this Agreement shall be obligated under a binding written agreement to assign to it, or as it shall direct, all VECTOR Improvements conceived or reduced to practice by such employees or other Persons. The provisions of this Section 9.1 are subject to Section 2.2 hereof. 9.2. PATENT PROSECUTION AND MAINTENANCE. VRI shall be responsible for and shall control the preparation, filing, prosecution, grant and maintenance of all LICENSED PATENTS. VRI shall prepare, file, prosecute and maintain such LICENSED PATENTS in good faith consistent with its customary patent policy and its reasonable business judgement, and shall consider in good faith the interests of LICENSEE in so doing. LICENSEE shall re-imburse VRI a share of reasonable costs of prosecution and maintenance of all LICENSED PATENTS as far as such costs are borne by VRI in the normal course of business after the Effective Date and for so long as the LICENSE to the relevant LICENSED PATENTS continues in effect. Such share shall be an amount equal to the total of the costs mentioned hereinabove multiplied by a fraction having as a numerator one (1), and as a denominator the total number of licences granted by VRI to Third-Parties with respect to LICENSED PATENTS. VRI shall furnish to HPC an estimated yearly budget for such costs. 9.3. ENFORCEMENT OF LICENSED PATENTS. In the event that LICENSED PATENTS are infringed by any Third-Party in the Field of Use, LICENSEE shall have the right, but not the obligation, to institute and prosecute any action or proceeding under LICENSED PATENTS with respect to such infringement, by counsel of its choice, including any declaratory judgement action arising from such infringement. Any amounts recovered from Third-Parties with respect to the LICENSED PATENTS in such action shall be retained by LICENSEE. LICENSEE shall not have the right to settle, compromise or take any action in such litigation which diminishes, limits or inhibits the scope, validity or enforceability of LICENSED PATENTS without the express permission of VRI. LICENSEE shall keep VRI advised of the progress of such proceedings. 17 18 In the event that a Third-Party is infringing any LICENSED PATENTS in the Field of Use and LICENSEE does not elect to institute an action, VRI shall have the right, but not the obligation, to commence an infringement suit under the LICENSED PATENTS against such infringer and shall retain any recovery; provided that it so notifies LICENSEE. ARTICLE 10 - TERM AND TERMINATION. 10.1. EXPIRATION. Unless terminated earlier pursuant to this Article 10 or Article 12, the Agreement shall expire on the expiration of LICENSEE's obligations to pay royalties under the Agreement in accordance with the Royalty Term. Thereafter, LICENSEE and Sublicensees shall have a perpetual, fully paid-up, royalty-free, non-cancellable, worldwide license or sub-license (whichever is applicable) to the VRI Technology. 10.2. After First Commercial Sale of a PRODUCT or PRODUCTS in a country, royalties for any other PRODUCT or PRODUCTS introduced into such country will only be payable if a Valid Patent Claim is in effect in the United States or Europe at the time such PRODUCT or PRODUCTS are first offered for sale in such country, provided that if LICENSEE has ceased to sell a PRODUCT in a country prior to the payment of royalties in such country for ten (10) years, any additional PRODUCT or PRODUCTS sold in such country thereafter will be subject to royalties without regard to the existence of a Valid Patent Claim until VRI has received at least ten (10) years of Royalty payments in such country. 10.3. TERMINATION BY LICENSEE. LICENSEE shall have the right at any time as from January 1, 1998, in its sole discretion, to terminate this Agreement, by giving not less than three (3) months' prior written notice to VRI of such termination. 10.4. TERMINATION FOR CAUSE. (i) Either Party may terminate this Agreement, at its option, upon or after the breach of any material provision of the Agreement, if the breaching Party has not cured such breach within ninety (90) days after written notice thereof from the other Party. (ii) LICENSEE or VRI may terminate this Agreement upon written notice to the other party if the other party makes a general assignment for the benefit of creditors, is the subject of proceedings in voluntary or involuntary bankruptcy or has a receiver or trustee appointed for substantially all of its property; PROVIDED that in the case of an involuntary bankruptcy proceeding such right to terminate shall only become effective if the other party consents thereto or such proceeding is not dismissed within ninety (90) days after the filing thereof. 18 19 Each of the parties hereto acknowledges and agrees that this Agreement (i) constitutes a license of Intellectual Property (as such term is defined in the United States Bankruptcy code, as amended (the "Code"), and (ii) is an executory contract, with significant obligations to be performed by each party hereto. The parties agree that LICENSEE may fully exercise all of its rights and elections under the Code, including, without limitation, those set forth in Section 365(n) of the Code. The parties further agree that, in the event that LICENSEE elects to retain its rights as a licensee under the Code, LICENSEE shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to LICENSEE not later than (a) the commencement of bankruptcy proceedings against VRI, unless VRI elects to perform its obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection of this Agreement by or on behalf of VRI. 10.5. EFFECT OF EXPIRATION AND TERMINATION. Expiration or termination of the Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. The provisions of Sections 2.1.3.(v) and 9.1. and Articles 8 and 11 shall survive the expiration or termination of the Agreement. ARTICLE 11 - INDEMNITY. 11.1. DIRECT INDEMNITY. 11.1.1. Each Party shall indemnify and hold harmless the other Party, its Affiliates, and their respective directors, officers, shareholders, agents, consultants and employees from and against all Third-Party claims, demands, liabilities, damages and expenses, including attorneys' fees and costs (collectively, the "LIABILITIES") arising out of the breach of any material provision of this Agreement by, or an act or an omission of, the indemnifying Party, except to the extent such Liabilities resulted from the gross negligence, recklessness or intentional acts or omissions of the other Party. 11.1.2. LICENSEE shall defend, indemnify and hold harmless VRI, its Affiliates, licensors, their respective directors, officers, shareholders, agents, consultants and employees, from and against all Liabilities suffered or incurred arising out of any Third-Party claims in connection with the manufacture, design, testing, possession, distribution, use, sale or other disposition by or through LICENSEE, its Affiliates or Sublicensees of any PRODUCTS or VECTOR, except in each case to the extent such Liabilities resulted from the gross negligence, recklessness or intentional acts or omissions of VRI, and except where VRI's liability is established in accordance with EXHIBIT 1 to APPENDIX B attached hereto as far as supply of VECTOR is concerned. 19 20 11.2. PROCEDURE. A Party (the "INDEMNITEE") that intends to claim indemnification under this Article 11 shall promptly notify the other Party (the "INDEMNITOR") of any Liability or action in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, jointly with any other Indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; PROVIDED, HOWEVER, that the Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other Party represented by such counsel in such proceedings. The indemnity obligations under this Article 11 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 11. The Indemnitee, its Affiliates, employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. ARTICLE 12 - FORCE MAJEURE. No Party (or any of its Affiliates) shall be held liable or responsible to the other Party (or any of its Affiliates) nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party (or any of its Affiliates) including but not limited to fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party (collectively, "EVENTS OF FORCE MAJEURE"); PROVIDED, HOWEVER, that the affected Party (i) shall immediately notify the other Party of the occurrence of any such Event of Force Majeure and (ii) shall exert all reasonable efforts to eliminate, cure or overcome any such Event of Force Majeure and to resume performance of its covenants with all possible speed; and PROVIDED, FURTHER, that nothing contained herein shall require any Party to settle on terms unsatisfactory to such Party any strike, lockout or other labor difficulty, any investigation or proceeding by any governmental authority or any litigation by any Third-Party. Notwithstanding the foregoing, to the extent that an Event of Force Majeure continues for a period in excess of six (6) months, the affected Party shall promptly notify in writing the other Party of such Event of Force Majeure and within four (4) months of the other Party's receipt of such notice, the Parties agree to negotiate in good faith either (i) to resolve the Event of Force Majeure, if possible, (ii) to extend by mutual agreement the time period to resolve, eliminate, cure or overcome such Event of Force Majeure, (iii) to amend this Agreement to the extent reasonably possible, or (iv) to terminate this Agreement. ARTICLE 13 - ASSIGNMENT. 20 21 This Agreement may not be assigned or otherwise transferred, nor, except as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred to any Third-Party by either Party without the consent of the other Party; PROVIDED, HOWEVER, that either Party may, without such consent, assign this Agreement and its rights and obligations hereunder to any of its Affiliates or in connection with the transfer or sale of all or substantially all of its business, or in the event of its merger or consolidation or change in control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Without limiting the generality of the foregoing, without the prior written consent of LICENSEE, VRI shall not under any circumstances assign or transfer any VRI Technology in the Field of Use unless the assignee expressly agrees in writing that the LICENSE shall remain in full force and effect pursuant to its terms and such assignment shall not relieve the assignor of any of its obligations under this Agreement. Each Party acknowledges that the other Party would suffer irreparable injury in the event of any breach of this Article 13 and that therefore the remedy at law for any breach or threatened breach hereof by any Party shall be inadequate. Accordingly, upon a breach or threatened breach hereof by any Party, the other Party shall, in addition and without prejudice to any other rights and remedies it may have, be entitled as a matter of right, without proof of actual damages, to seek specific performance hereof and to such other injunctive or equitable relief to enforce or prevent any violations (whether anticipatory, continuing or future) hereof. ARTICLE 14 - NOTIFICATION OF PATENT TERM RESTORATION - PATENT EXTENSIONS. VRI shall notify LICENSEE of (a) the issuance of each U.S. patent included within the LICENSED PATENTS, giving the date of issue and patent number for each such patent, and (b) each notice pertaining to any patent included within the LICENSED PATENTS which it receives as patent owner pursuant to the United States Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter called the "Act"), including notices pursuant to sections 101 and 103 of the Act from Persons who have filed an abbreviated new drug application ("ANDA"). Such notices shall be given promptly, but in any event within five (5) calendar days of each such patent's date of issue or receipt of each such notice pursuant to the Act, whichever is applicable. VRI shall notify LICENSEE of each filing for patent term restoration under the Act, any allegations of failure to show due diligence and all awards of patent term restoration (extensions) with respect to the LICENSED PATENTS. Likewise, VRI or LICENSEE, as the case may be, shall inform the other Party of patent extensions and periods of data exclusivity in the rest of the world regarding any PRODUCTS and more generally the Parties shall diligently cooperate with respect to any procedures for patent and period of data exclusivity extensions, such as but not limited to Supplementary Protection Certificates, the above-mentioned Patent Term Restoration and corresponding GATT regulations. ARTICLE 15 - ADVERSE EXPERIENCE REPORTING. During the term of the Agreement, each Party shall notify the other immediately of any information (howsoever obtained and from whatever source) concerning any unexpected side effect, injury, toxicity or sensitivity reaction, or any unexpected incidence, and the severity thereof, associated with the clinical uses, studies, investigations, tests and marketing of PRODUCTS and, to the extent feasible, any other product containing VECTOR (hereinafter, a "PRODUCT"), or VECTOR. For purposes of this Article 15, "UNEXPECTED" shall mean (x) for a non-marketed Product, an experience that is not identified in nature, severity or frequency in 21 22 the current clinical investigator's confidential information brochure, and (y) for a marketed Product, an experience which is not listed in the current labeling for such Product, and includes an event that may be symptomatically and pathophysiologically related to an event listed in the labelling but differs from the event because of increased frequency or greater severity or specificity. Each Party further shall immediately notify the other of any information received regarding any threatened or pending action by an agency which may affect the safety and efficacy claims of a Product. Upon receipt of any such information, the Parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action; provided, however, that nothing contained herein shall be construed as restricting either Party's right to make a timely report of such matter to any government agency or take other action that it deems to be appropriate or required by applicable law or regulation. ARTICLE 16 - SEVERABILITY. Each Party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such provisions. In case such provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions. ARTICLE 17 - MISCELLANEOUS. 17.1. NOTICES. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties hereto to the other shall be in writing, delivered personally or by facsimile and promptly confirmed by personal delivery, first class air mail or courier, postage prepaid (where applicable), addressed to such other Party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee. ~ IF TO VRI: VIRUS RESEARCH INSTITUTE, INC. 61 Moulton Street Cambridge MA 02138 USA Attention: President 22 23 Telefax: (617) 864-6334 Telephone: (617) 864-6232 ~ IF TO LICENSEE: MERIEUX ORAVAX S.N.C. c/o PASTEUR MERIEUX Serums & Vaccins S.A. 58, avenue Leclerc 69007 Lyon, France Attention: Senior Vice-President, Legal & Corporate Affairs and General Counsel, Legal Department Telefax: 33.4.72.73.70.61 Telephone: 33.4.72.73.77.84 ORAVAX MERIEUX CO. c/o ORAVAX, INC. 38, Sidney Street Cambridge, MA 02139, USA; Attention: President & Chief Executive Officer Telefax: (617) 494-1741 Telephone: (617) 494-1339 17.2. APPLICABLE LAW. The Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts, without regard to the conflict of law principles thereof. 17.3. REPRESENTATIONS, WARRANTIES AND COVENANTS. 17.3.1. REPRESENTATIONS AND WARRANTIES OF MERIEUX ORAVAX S.N.C. (a) Merieux OraVax S.N.C. is a Societe en Nom Collectif duly organized and existing under the laws of France, with the corporate power to own, lease and operate its properties and to carry on its business as now conducted. (b) Merieux OraVax S.N.C. has all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) The execution, delivery and performance of this Agreement by Merieux OraVax S.N.C. does not conflict with or contravene the statuts of Merieux OraVax S.N.C., nor will the execution, delivery or performance of this Agreement conflict with or result in a breach of, or entitle any party thereto to terminate, any material agreement or instrument to which Merieux OraVax S.N.C. is a party, or by which any of its assets or properties are bound. (d) This Agreement has been duly authorized, executed and delivered by Merieux OraVax S.N.C. and constitutes a legal, valid and binding agreement of Merieux OraVax S.N.C., enforceable against Merieux OraVax S.N.C. in accordance with its terms, except as enforceability may be limited by bankruptcy, 23 24 insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally. 17.3.2. REPRESENTATIONS AND WARRANTIES OF ORAVAX MERIEUX CO. (a) OraVax Merieux Co. is a General Partnership duly organized and existing under the laws of the State of Massachusetts, with the corporate power to own, lease and operate its properties and to carry on its business as now conducted. (b) OraVax Merieux Co. has all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) The execution, delivery and performance of this Agreement by OraVax Merieux Co. does not conflict with or contravene the by-laws of OraVax Merieux Co., nor will the execution, delivery or performance of this Agreement conflict with or result in a breach of, or entitle any party thereto to terminate, any material agreement or instrument to which OraVax Merieux Co. is a party, or by which any of its assets or properties are bound. (d) This Agreement has been duly authorized, executed and delivered by OraVax Merieux Co. and constitutes a legal, valid and binding agreement of OraVax Merieux Co., enforceable against OraVax Merieux Co. in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally. 17.3.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF VRI. (a) VRI is a corporation duly incorporated and validly existing as a corporation in good standing under the laws of the State of Delaware, with the corporate power to own, lease and operate its properties and to carry on its business as now conducted. (b) VRI has all necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. (c) The execution, delivery and performance of this Agreement by VRI does not conflict with or contravene its certificate of incorporation or by-laws, nor will the execution, delivery or performance of this Agreement conflict with or result in a breach of, or entitle any party thereto to terminate, any material agreement or instrument to which VRI is a party, or by which any of its assets or properties are bound. (d) This Agreement has been duly authorized, executed and delivered by VRI and constitutes a legal, valid and binding agreement of VRI, enforceable against VRI in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting creditors' rights generally. (e) All LICENSED PATENTS listed on SCHEDULE A have been registered in, filed in or issued by the appropriate patent offices of each jurisdiction as indicated on such SCHEDULE A, and in each case is currently in effect and all maintenance 24 25 fees and renewals thereof have been duly made with respect thereto. VRI owns or has full and exclusive rights to use and exploit under licenses (and to license or sublicense) all its rights under such LICENSED PATENTS and the LICENSED KNOW-HOW. There have been no material claims made against VRI asserting the invalidity or unenforceability of, or with respect to such LICENSED PATENTS , the misuse of such LICENSED PATENTS or the LICENSED KNOW-HOW, nor is VRI aware that any such claims exist. VRI has not received a notice of conflict of such LICENSED PATENTS or the LICENSED KNOW-HOW with the asserted rights of others, or otherwise challenging its rights to use any of such LICENSED PATENTS, or the LICENSED KNOW-HOW. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS SECTION, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, OR VALIDITY OF ANY PATENT RIGHTS ISSUED OR PENDING. 17.4. DISPUTE RESOLUTION. The Parties agree that if any dispute or disagreement arises between LICENSEE on the one hand and VRI on the other in respect of this Agreement, they shall follow the following procedure in an attempt to resolve the dispute or disagreement. (a) The Party claiming that such a dispute exists shall give notice in writing ("NOTICE OF DISPUTE") to the other Party of the nature of the dispute; (b) Within twenty eight (28) business days of receipt of a Notice of Dispute, a nominee or nominees of LICENSEE and a nominee or nominees of VRI shall meet in person and exchange written summaries reflecting, in reasonable detail, the nature and extent of the dispute, and at this meeting they shall use their reasonable endeavours to resolve the dispute; (c) If, within a further period of twenty eight (28) business days, the dispute has not been resolved or if, for any reason, the required meeting has not been held, then the Parties agree that any dispute shall be referred to an arbitrator appointed by agreement of VRI and LICENSEE or, if no such agreement is reached within sixty (60) business days after a Party commences the arbitration, then by a panel of three arbitrators, with each of LICENSEE and VRI to select one arbitrator and those two arbitrators to select the third. If all three arbitrators have not been selected within sixty (60) business days after a Party commences the arbitration, then the Parties agree to abide by the selection of the remaining arbitrator to be named by a representative of the International Chamber of Commerce. The Parties agree that the Rules of the International Chamber of Commerce shall govern such arbitration and that any decision of the arbitrators shall be final and binding and shall be enforceable in any court of competent jurisdiction worldwide (regardless of whether one of the Parties fails or refuses to participate in the arbitration) and shall be enforced pursuant to the New-York Convention on the Recognition and Enforcement of Arbitral Awards. The Parties agree that all arbitrations shall be conducted in the English language and that the exclusive venue of all arbitrations shall be in London, England. The Party determined by the arbitrators to be the Party 25 26 substantially prevailing in the arbitration shall be entitled to recover its legal and consultants' fees and other costs reasonably incurred in connection with the arbitration (as determined by the arbitrators); and (d) in the event of a dispute regarding any payments owing under this Agreement, all undisputed amounts shall be paid promptly when due and the balance, if any, promptly after resolution of the dispute. 17.5. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the Parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made [-] are expressly superseded by this Agreement. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties hereto. 17.6. INDEPENDENT CONTRACTORS. VRI and LICENSEE each acknowledge that they shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither VRI nor LICENSEE shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior consent of the other Party to do so. 17.7. AFFILIATES. Each Party shall cause its respective Affiliates to comply fully with the provisions of this Agreement to the extent such provisions specifically relate to, or are intended to specifically relate to, such Affiliates, as though such Affiliates were expressly named as joint obligors hereunder. 17.8. WAIVER. The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise. 17.9. NO IMPLIED LICENCE. Nothing in this Agreement shall be deemed to constitute, by implication or otherwise, the grant by LICENSEE to VRI, or by VRI to LICENSEE, of any license to, or interest in, or other rights under any patent, patent application, proprietary 26 27 know-how, trade secrets or other intellectual property rights owned or possessed by LICENSEE or VRI, whichever is applicable, except as expressly provided for herein. 17.10. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above. For VIRUS RESEARCH INSTITUTE, INC. By: /S/ J. Barrie Ward ------------------------- Name: J. Barrie WARD Title: Chairman & Chief Executive Officer. For MERIEUX ORAVAX S.N.C. By: /s/ Jean-Jacques Bertrand --------------------------------------- Name: PASTEUR MERIEUX Serums & Vaccins S.A. Associe Gerant, represented by Jean-Jacques BERTRAND, Chairman, President & Chief Executive Officer By: /s/ Lance K. Gordon --------------------------------------- Name: ORAVAX JVM, Inc., Associe, represented by Lance K. GORDON, President and Chief Executive Officer 27 28 For ORAVAX MERIEUX, CO. By: /s/ Herve Tainturier --------------------------------------- Name: MERIEUX AMERICA HOLDINGS, Inc. General Partner, represented by Herve TAINTURIER, President By: /s/ Lance K. Gordon --------------------------------------- Name: ORAVAX JVM, Inc., general partner, represented by Lance K. GORDON, President OraVax and PMC each hereby guarantee that their respective Affiliates, including but not limited to Merieux OraVax S.N.C. and OraVax Merieux Co., shall perform all obligations which are expressly imposed upon them pursuant to and in accordance with this Agreement, and that OraVax and PMC shall each be bound by the terms and conditions of this Agreement imposed on LICENSEE as if OraVax and PMC were parties to this Agreement. For ORAVAX INCORPORATED By: /s/ Lance K. Gordon --------------------------------------- Name: Lance K. GORDON Title: President & Chief Executive Officer For PASTEUR MERIEUX SERUMS & VACCINS S.A. By: /s/ Jean-Jacques Bertrand ------------------------------------ Name: Jean-Jacques BERTRAND Title: Chairman, President & Chief Executive Officer. 28 29 CONFIDENTIAL TREATMENT ----------------------------------- SCHEDULE A ------------ LICENSED PATENTS ----------------------------------- [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 29 30 CONFIDENTIAL TREATMENT ------------------------------------------------ SCHEDULE B ------------ LIST OF HPC ANTIGENS ------------------------------------------------ [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 30 31 ------------------------------------------------- APPENDIX A ------------ TERMS AND CONDITIONS APPLICABLE TO RESEARCH CONTRACT ------------------------------------------------- 1. OBJECT. Pursuant to a mutually agreed upon research program which shall be definitely established by the Research Committee referred to in Section 2. hereinafter on terms substantially in accordance with the draft research program attached hereto as EXHIBIT+1 (the "RESEARCH PROGRAM"), VRI agrees to conduct research works described therein and LICENSEE agrees to support and fund such Research Program in accordance with the terms and conditions set forth here below. 2. OVERSIGHT OF THE RESEARCH PROGRAM. 2.1. OVERSIGHT. The Research Program shall be overseen and monitored by the Research Committee as described herein (the "COMMITTEE"). 2.2. MEMBERSHIP. VRI and LICENSEE shall each appoint two (2) persons (or such other number of persons as the Parties may determine) to serve on the Committee. Such representatives shall be qualified, by reason of background and experience, to assess the scientific progress of the Research Program. Each Party shall have the right to change its representation on the Committee upon written notice sent to the other. 2.3. CHAIR. The Committee shall be chaired by one representative of LICENSEE. 2.4. RESPONSIBILITIES. The Committee shall have authority to: (i) review and approve the draft Research Program and establish the definitive Research Program; (ii) make recommendations regarding the performance of the Research Program and the conduct of research works pursuant thereto, and monitor performance thereunder; (iii) modify the Research Program as it determines, for each twelve (12) month period during the term thereof; (iv) review any and all proposed publication or communication relating to the Research Program and the results therefrom; 31 32 (v) review any and all proposed filings of patent applications in connection with the Research Program. 2.5. MEETINGS. The Committee shall meet not less than two (2) times a year during the term of the Research Program, at such dates and times as agreed to by the Parties. Meetings in person shall normally take place at VRI's premises or such other place as may be mutually agreed upon. Meetings may be held by telecommunication means. At such meetings, the Committee shall discuss the Research Program and the status of performance by VRI under the Program, evaluate the results thereof and set priorities therefor. The Committee shall prepare written minutes of each meeting and a written record of all decisions whether made at a formal meeting or not. Such minutes shall incorporate semi-annual research reports prepared by VRI. 3. THE PRINCIPAL INVESTIGATOR. 3.1. PRINCIPAL INVESTIGATOR. The Principal Investigator of the Research Program shall be Dr Kevin KILLEEN, an employee of VRI ("PRINCIPAL INVESTIGATOR"). VRI shall consult with LICENSEE regarding any replacement of the Principal Investigator, PROVIDED, however, that VRI shall have the right to make, and shall make, the final determination regarding any such replacement. The Principal Investigator shall be appointed as a member of the Committee and may be designated by VRI to act on behalf of VRI as co-chair on such Committee. 3.2. DUTIES. The Principal Investigator shall direct the Research Program and coordinate the efforts of other researchers involved in the performance of such Program. The Principal Investigator shall sit with the Committee as provided in Section 2. hereof, shall contribute to the performance of the duties set forth hereunder and shall be afforded the opportunity to actively participate in all Committee deliberations. The Principal Investigator shall provide reasonably detailed status reports of the Research Program to the Committee at six-month intervals, as well as at the earliest practicable time whenever, in the Principal Investigator's judgment, an invention is created or reduced to practice. The Principal Investigator shall devote such time and efforts as may be required to fulfill his duties hereunder and to ensure the successful administration and coordination of the Research Program. 3.3. REPLACEMENT. The Principal Investigator may be replaced at any time upon the written request of either Party. In such event, or if the then existing Principal Investigator is no longer able or is unwilling so to serve, the Parties shall endeavour to find a mutually acceptable substitute. If no mutually acceptable substitute can be agreed upon within a reasonable time, then HPC shall have the right to terminate forthwith the Research Program, and effect of such termination shall be as provided for in Section 6.2 hereof, it being understood that termination of the Research Program shall not entail termination of, and shall be without any prejudice whatsoever to, the License Agreement. 32 33 CONFIDENTIAL TREATMENT 4. CONDUCT OF RESEARCH PROGRAM. 4.1. GOOD LABORATORY PRACTICES. The Research Program shall be conducted by VRI at VRI's laboratories. VRI shall use all reasonable efforts to complete research works in accordance with the said Program. Any research work performed by VRI pursuant hereto shall be in compliance with current Good Laboratory Practices (cGLP) as applicable in the United States of America. 4.2. LABORATORY NOTEBOOKS. VRI shall cause its employees to maintain laboratory notebooks. Such laboratory notebooks shall set forth such work in detail, including a clear description of the purposes for which the work has been undertaken and the results expected; sufficient details, diagrams, plans, sketches and identification of materials used, formulations and operating conditions under which the work was conducted as may be necessary to understand and reproduce the work conducted; identification of any intermediate or final results achieved; and if such laboratory notebooks contain any interpretations of data, they shall also describe the rough data upon which such interpretations have been based. VRI shall further cause its employees, agents and permitted subcontractors maintaining such laboratory notebooks to have their work corroborated periodically, which corroboration shall include at least personal witnessing of the notebooks indicating that the witness has read and understood the material on the page witnessed on the date that he or she signed it. 5. FINANCIAL CONDITIONS. 5.1. SUPPORT COMMITMENT. In consideration of the work performed by VRI pursuant to and in accordance with the Research Program, LICENSEE shall make available to VRI during the Research Program a maximum of [*] (the "Commitment"). The Commitment shall be inclusive of all costs incurred by VRI implementing the Research Program. 5.2. PAYMENTS SCHEDULE. Support payments shall be made by LICENSEE to VRI in one single payment within fifteen (15) days of the Effective Date of this Agreement. 5.3. REPORTING. VRI shall report and reconcile budgeted versus actual expenditures on a semi-annual basis. Two copies of the semi-annual report shall be sent to HPC. Upon reasonable advance request and at reasonable times (but not on more than two occasions), HPC shall have the right on demand to receive full and true financial information regarding any and all matters affecting compliance with Research Program and any amounts funded hereunder and to inspect the relevant books and records of VRI relating thereto, at HPC expenses, using representatives of its choice. VRI's books of account and all necessary supporting data shall be kept for at least three (3) years following the end of the fiscal year to which each will pertain. In the event that amounts funded pursuant hereto exceeds actual /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 33 34 expenditures incurred by VRI, VRI shall promptly reimburse such excess to HPC, unless the Parties mutually agree on an extension of the Research Program which would require consummation of such excess. 5.4. NO CONFLICT WITH RESEARCH PROGRAM. VRI agrees that the Commitment provided by LICENSEE shall be applied to the Research Program and may not, without LICENSEE prior written approval, be used in support of any other research at VRI. 5.5. TITLE TO EQUIPMENT. VRI shall retain title to any equipment purchased with funds provided by LICENSEE under this Agreement, if such purchase is mutually agreed upon as part of the Research Program budget. 6. TERM OF THE RESEARCH PROGRAM. 6.1. The term of the Research Program shall be twelve (12) months as from January 1, 1997, unless terminated earlier upon termination of this Agreement in accordance with Article 10 of the License Agreement. 6.2. HPC shall be entitled to forthwith terminate the Research Program and cease funding thereof (i) in the event of disagreement between the Parties as to the replacement of the Principal Investigator under Section 3.3 hereinabove, and (ii) in the event of a material breach by VRI of any VRI's obligations and covenants hereunder. In the event of any such termination, VRI shall reimburse HPC of any amounts paid by HPC and found in excess of VRI's actual expenditures (reasonable termination costs excluded) further to an accounting audit conducted in accordance with Section 5.3 above. VRI's right to receive any unpaid balance otherwise committed by HPC as support commitment to the Research Program pursuant to Section 5.1 hereof shall become forfeited and no further payments with respect to Research Program shall be due to VRI by HPC. Termination of the Research Program pursuant to this Section 6.2. shall not entail termination of, and shall be without any prejudice whatsoever to the License Agreement. 7. CONFIDENTIALITY. In order to facilitate the Research Program, either Party may disclose confidential or proprietary information owned or controlled by it to the other. It is hereby understood and agreed that such information shall be deemed "CONFIDENTIAL INFORMATION" as defined in Article 8 of the License Agreement and treated as such. 8. PUBLICATIONS. Each Party shall have the right to publish or present the Results of the Research Program and announce scientific progress of the Research Program, provided such publication, presentation or announcement (and any revisions thereof, a "Publication") is submitted to the other Party through the Committee at least sixty (60) days prior to submitting it to any Third-Party (including any editing person). The other Party shall have sixty (60) days after receipt of the draft Publication to review 34 35 and comment on such draft. Upon notice within such sixty (60) day period by the other Party that such Party reasonably believes the Publication would amount to the public disclosure of a patentable invention upon which a patent application should be filed prior to any such disclosure, submission of the concerned Publication to Third-Parties shall be delayed for a ninety (90) day period from the date of said notice, or for such longer period which may appear necessary for appropriately drafting and filing a patent application covering such invention. If the other Party reasonably believes that the Publication would amount to the public disclosure of such other Party's Confidential Information, said other Party may request deletion of such information from the proposed Publication. In addition, each Party shall duly take into account comments made by the other Party on any Publication and shall accept to have employees or others acting on behalf of the other Party be mentioned as co-authors on any Publication describing results to which such persons will have contributed. 9. INVENTIONS. Ownership of inventions, whether or not patentable, and of any patent applications and patents based thereon, which may result from the Research Program (the "RESEARCH INVENTIONS") shall be established in accordance with the following: (i) Any Research Invention which is solely directed to the VRI Technology and/or VECTOR, per se, shall be owned by VRI and automatically licensed by VRI to HPC subject to and in accordance with the LICENSE, except that if any such invention is patented, the term of the corresponding patent shall not be taken into account to determine the Royalty Term; (ii) Any Research Invention solely directed to an HPC Antigen or an Other Hp Antigen, shall be owned by HPC; (iii) Any Research Invention which is directed to the combination of the VRI Technology and an antigen or antigens or another piece of technology controlled by HPC rather than antigens in general, shall be jointly owned by VRI and HPC and be considered a Joint Invention. VRI's interest in such Joint Invention shall be deemed automatically licensed by VRI to HPC subject to and in accordance with the LICENSE, except that if any such invention is patented, the term of the corresponding patent shall not be taken into account to determine the Royalty Term. Except for the rights granted to HPC in the Field of Use under the LICENSE, neither Party shall exploit a Joint Invention without the prior agreement in writing of the other Party, provided VRI may request HPC to enter into good faith negotiations if VRI wishes to exploit any such Joint Invention outside the Field of Use or within the scope of the non-exclusive LICENSE. (iv) Any Research Invention which is directed to the combination of VRI Technology and to antigens in general shall be owned by VRI and automatically licensed by VRI to HPC, subject to and in accordance with the LICENSE, except that if any such invention is patented, the term of the corresponding patent shall not be taken into account to determine the Royalty Term. 35 36 CONFIDENTIAL TREATMENT ----------------------------------------------- APPENDIX B ----------- TERMS AND CONDITIONS APPLICABLE TO VECTOR SUPPLY ----------------------------------------------- 1. THE SUPPLY AGREEMENT. VRI has stated to LICENSEE its current intention to establish itself as a manufacturer of the VECTOR. Provided VRI can reasonably demonstrate that it shall be able to timely manufacture VECTOR under current Good Manufacturing Practice at competitive cost in sufficient quantities, LICENSEE shall purchase from VRI LICENSEE's requirements for VECTOR for use in the manufacture of PRODUCTS under the terms and conditions of a supply agreement (the "SUPPLY AGREEMENT"), which agreement shall be negotiated in good faith in a timely fashion by the Parties hereto so as to become effective at least six months before LICENSEE's expected First Commercial Sale of PRODUCTS. The Parties agree to negotiate in good faith in a timely fashion the detailed terms and conditions of the Supply Agreement which shall include at a minimum the following terms and conditions set forth in this Article 1, as well as such other terms and conditions as may be agreed upon by the Parties. 2. VECTOR REQUIREMENTS. The Supply Agreement shall provide that VRI shall manufacture or have manufactured and LICENSEE shall purchase from VRI, LICENSEE's entire requirements of VECTOR (clinical lots as well as commercial lots) for PRODUCTS and that LICENSEE shall purchase such VECTOR for its own use in manufacturing PRODUCTS only and shall not be permitted to sell or re-sell VECTOR to any Third-Party. 3. SPECIFICATIONS. The Supply Agreement shall provide for (i) specifications that VRI shall be obligated to comply with; (ii) quality control criteria and procedures; and (iii) LICENSEE's reasonable acceptance criteria for the VECTOR. 4. FORECASTS AND ORDERS. The Supply Agreement shall provide for the establishment of reasonable rolling forecasts and placement of orders which shall take into account VRI's need to rationally plan its manufacturing of VECTOR consistent with its other manufacturing obligations. 5. PRICE. The price of VECTOR shall be negotiated in good faith by the Parties and set forth in the Supply Agreement, but in no event shall such price be for less than [*]. /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. 36 37 6. BACK-UP INVENTORIES. Pursuant to the Supply Agreement, VRI shall agree to supply, and LICENSEE shall agree to maintain inventory of VECTOR in its own facility sufficient to meet its forecasted needs. 7. WARRANTIES. Pursuant to the Supply Agreement, VRI shall warrant that (i) VECTOR at the time of delivery shall meet the specifications referred to in Section 3. hereinabove; (ii) VECTOR shall be manufactured in accordance with current Good Manufacturing Practices in effect in the country where it is manufactured or in compliance in all material respects with the principles of the current Good Manufacturing Practices in effect in any other country where PRODUCTS are manufactured and/or sold (if more stringent than cGMP first referred above) and any relevant establishment and product licenses issued by any public health authority having jurisdiction. LICENSEE shall inform VRI of the countries in which PRODUCT is to be licensed to be sold and of any and all Agency(ies) responsible in such countries. Upon request, LICENSEE shall provide VRI with information regarding the regulatory requirements in each such country. VRI SHALL DISCLAIM ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS. 8. QUALITY AUDIT. Pursuant to the Supply Agreement, VRI shall permit LICENSEE, upon reasonable notice and at reasonable times, at LICENSEE's expense, to audit in cooperation with VRI's personnel production, packaging, quality control and forwarding facilities of VRI and any of its significant suppliers as they relate to VRI's manufacturing responsibilities under the Supply Agreement. 9. ADVERSE EVENTS REPORTING. Under the Supply Agreement, the Parties shall establish a procedure for monitoring and reporting adverse drug experiences, consistent with Article 15 of the License Agreement. 10. ASSURANCE OF SUPPLY. Under the terms of the Supply Agreement, LICENSEE and VRI shall cooperate to anticipate LICENSEE's reasonable long-term requirements for VECTOR, and VRI shall take reasonable measures to assure that LICENSEE's reasonable requirements can be met, which measures may include the qualification of more than one manufacturing facility (including one such facility that may be operated by LICENSEE or an Affiliate of LICENSEE, in which case VRI shall transfer manufacturing Know-how in accordance with Section 11 hereinafter) and/or maintenance of safety stocks of VECTOR as provided for in Section 6 hereof. 11. TRANSFER OF MANUFACTURING TECHNOLOGY. The Supply Agreement shall contain provisions for the compulsory transfer of Manufacturing Know-How from VRI to HPC under certain circumstances such as, but not necessarily limited to, durable failure to supply by VRI, VRI's Affiliates or contractors, VRI's material breach of the Supply Agreement or VRI's bankruptcy. 37 38 12. NO ASSIGNMENT ; NO SUB-CONTRACT. VRI shall neither assign nor sub-contract any part of its rights and obligations under this APPENDIX B, or any part of its manufacturing responsibility under the Supply Agreement, to any third Party without the prior written agreement of LICENSEE which shall not unreasonably withheld. 13. LIABILITIES, INDEMNIFICATION AND INSURANCE. The Supply Agreement shall include provisions relating to liabilities, indemnification and insurance substantially similar to the provisions of the Indemnity Agreement herewith attached as EXHIBIT 1. --------------------------------------------- EXHIBIT 1 ---------- INDEMNITY AGREEMENT --------------------------------------------- WHEREAS, HPC (hereinafter called "Purchaser") and VRI (hereinafter called "Supplier") have entered into a License Agreement (the "License") relating to the use of a certain VECTOR (the "VECTOR") known as VibrioVec for use as a delivery system in vaccines against Helicobacter pylori infections, dated as of December 1, 1997; WHEREAS, pursuant to the License, Supplier has agreed to sell, and Purchaser has agreed to purchase, certain quantities of VECTOR, under terms and conditions set forth in short form in the relevant provisions contained in APPENDIX B of the License and to be finally established in a Supply Agreement to be negotiated in good faith in a timely manner by the parties hereto; WHEREAS, Purchaser is planning to enter into human clinical trials using VECTOR; WHEREAS, in order to allow these actions to be timely undertaken, the parties have agreed to set-up terms and conditions applicable to liabilities and indemnification in connection with the early supply of clinical lots of VECTOR which have previously been supplied to Purchaser, in advance of entering into the definitive Supply Agreement. NOW, THEREFORE, in consideration of the premises herein and for other good and valuable consideration, the parties hereto agree as follows: 1. PURPOSE. This Agreement shall set forth the terms and conditions under which Purchaser shall provide and maintain insurance coverage and indemnify Supplier in certain circumstances in connection with the use of VECTOR by Purchaser in human clinical trials. 38 39 2. INSURANCE. Each party, at its own expense, will maintain, with insurers which are rated A or better by A.M. BEST, a General Product Liability, Environmental and, in the case of Purchaser, Clinical Trial insurance program(s) in an amount commensurate with the risks incurred. Purchaser will cause (a) Supplier to be named as an additional insured under Purchaser's General & Product Liability and Environmental Liability insurance policies (but under those policies only and with coverage limited to Claims as defined in Section 4 hereof), (b) such insurance to be designated as primary to any insurance which may be carried by Supplier, and (e) such insurance to provide that it can only be cancelled or materially altered upon not less than thirty (30) days notice to Supplier. Purchaser shall not assert against Supplier and hereby waives any and all claims against Supplier for losses, damages, liability, judgments, costs and expenses (including attorney's fees) imposed upon or incurred by Purchaser as a result of or arising out of any claim covered by such insurance to the extent of such coverage and to the extent Purchaser will have agreed to indemnify Supplier pursuant to Section 4 hereinafter. 3. INSURANCE CERTIFICATES. Prior to issuing the first purchase order to Supplier and from time to time thereafter as reasonably required by Supplier, Purchaser shall furnish Supplier with (an) insurance certificate(s) evidencing compliance with Insurance Section above, and reciprocally. 4. INDEMNITY. Notwithstanding the existence or lack of insurance, Purchaser shall, at its sole cost and expense, defend Supplier from any and all claims, demands, actions or causes of action, at law or in equity (including but not limited to claims by Purchaser's employees and customers and including an environmental liability) (a "Claim") and indemnify and hold Supplier harmless from all damages, liabilities, losses, costs, judgments, orders, assessments, interest, penalties, fines, settlement payments, costs and expenses (including, without limitation, reasonable attorneys fees and other investigation and defense costs and expenses) incurred by Supplier which arise out of or result in any way from bodily injury (including death) or property damage, however arising out of, or related in any way, to Purchaser's possession, use, sale, distribution, processing, shipment, storage or disposal of the VECTOR or any derivative thereof sold or otherwise transferred by Supplier to Purchaser for the purpose described in the preamble to this Agreement. Purchaser shall have the duty to defend, indemnify and hold Supplier harmless against any actual or alleged negligence by Supplier. In the event that Purchaser fails to promptly and diligently investigate and defend or settle any Claim then Supplier shall have the right, at Purchaser's cost, expense and risk, from that time forward to have sole control of the defense of the Claim and all negotiations for its settlement or compromise. Notwithstanding the foregoing, the INDEMNITY provided for hereinabove shall not apply to the extent that the Claim arises out of, is based upon or results from the gross negligence or willful misconduct (which shall include misrepresentation or concealment of data relating to toxicity of VECTOR) of Supplier, or an event having occurred before 39 40 the time that title to VECTOR (or to any shipment or unit thereof) passes to Purchaser, in which cases Supplier shall defend, indemnify and hold Purchaser harmless in the same manner and to the same extent than provided for hereinabove where Purchaser is the indemnifying party, and PROVIDED further that, in any event, the INDEMNITY provided for hereinabove shall not apply to the extent the Claim is a claim for environmental liability arising out of, based upon or resulting from an event occurring at a Supplier's facility or a facility of a supplier's sub-contractor, or at any other place (including during transportation) prior to the time title to VECTOR (or to any shipment or unit thereof) passes to Purchaser. The Indemnity provided for herein shall be limited to Claims relating to units of VECTOR sold or otherwise transferred by Supplier to Purchaser for the purpose described in the preamble to this Agreement, as identified in the invoices and/or control certificates and other commercial and pharmaceutical documentation issued by Supplier to Purchaser along with the delivery of such units of VECTOR. 5. COSTS & EXPENSES. The indemnities in INDEMNITY Paragraph of this Agreement include all costs and expenses reasonably required to investigate and to defend any such claim or action, any amount paid or required to be paid to settle such claim or action, or any amount paid or required to be paid to settle such claim or action, or any amount finally awarded by a court as damages or otherwise in any such action, provided that neither party will have an obligation to pay or to reimburse the other party for the amount of any internal expenses (including, but not limited to, compensation paid to its employees) that it may incur in connection with its cooperation in the investigation and/or defense of such claim or action. 6. LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY PARTY HAVE ANY LIABILITY TO THE OTHER PARTY HEREUNDER OR OTHERWISE FOR ANY LOSS OF PROFITS, COST OR COVER OR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES, HOWEVER CAUSED, WHETHER BY THE OTHER PARTY'S BREACH OF ANY EXPRESS OR IMPLIED WARRANTY, NEGLIGENCE, STRICT LIABILITY UNDER LAW OR OTHERWISE. 7. SURVIVAL. The provisions of this Agreement shall survive the expiration and/or termination of this Agreement, unless this Agreement is superseded by the Supply Agreement, in which case the provisions relating to Liabilities and Indemnification contained in said Supply Agreement will supersede this Agreement. 40 41 CONFIDENTIAL TREATMENT CONFlDENTIAL Exhibit I to Appendix A RESEARCH PROPOSAL APPLICATION OF VIBRIOVEC(TM) AND ATTENUATED SALMONELLA AS LIVE ORAL VECTORS FOR PM-O PROPRIETARY H. PYLORI ANTIGENS [*] /*/ Confidential material omitted and filed separately with the Securities and Exchange Commission. A total of 8 pages have been omitted from this Exhibit 1 to Appendix A. 41 EX-11.1 6 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE VIRUS RESEARCH INSTITUTE, INC. COMPUTATION OF NET LOSS AND PRO FORMA NET LOSS PER COMMON SHARE YEAR ENDED DECEMBER 31, 1997 1996 1995 ----------------------------------------- Net loss ($6,564,354) ($1,581,936) ($6,297,028) Shares used in computing net loss per common share: Weighted average common stock outstanding during the period 8,897,784 2,120,604 688,720 Conversion of redeemable convertible preferred stock (1) 0 5,519,122 5,415,951 Common stock equivalents (2) N/A N/A N/A Weighted average common shares --------- --------- ----------- outstanding 8,897,784 7,639,726 6,104,671 Basic and diluted net loss per common share ($ 0.74) =========== Pro forma basic and diluted net loss per common share ($ 0.21) ($ 1.03) =========== =========== (1) Effective with the closing of the Company's initial public offering of common stock, redeemable convertible preferred stock converted into shares of common stock. Accordingly, the equivalent number of weighted average common shares that would have been outstanding during each period presented have been included as outstanding. (2) Common stock equivalents representing potential issuances of 1,116,246 shares for the year ended December 31, 1997; 1,103,618 for the year ended December 31, 1996; and 848,115 shares for the year ended December 31, 1995 have been excluded as their effect would be antidilutive. EX-23.1 7 CONSENT OF RICHARD A. EISNER & COMPANY, LLP 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 333-13245 of Virus Research Corporation (The "Company") on Form S-8 of our report dated January 30, 1998 on the financial statements of the Company as at December 31, 1997 and December 31, 1996 and for each of the years in the three year period ended December 31, 1997 appearing in this annual report on Form 10-K of the Company. Richard A. Eisner & Company, LLP Cambridge, MA March 26, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31, 1997 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH. 1 U.S. DOLLARS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 2,488,963 15,968,923 0 0 0 20,125,912 3,131,802 2,416,568 20,878,339 1,468,492 0 0 0 8,928 19,400,919 20,878,339 0 3,804,395 0 0 10,368,749 0 0 (6,564,354) 0 (6,564,354) 0 0 0 (6,564,354) (0.74) (0.74)
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